UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended January 28, 2017 o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period from ____________ to ____________ Commission File Number: 001-12951 THE BUCKLE, INC. (Exact name of Registrant as specified in its charter) Nebraska 47-0366193 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) 2407 West 24th Street, Kearney, Nebraska 68845-4915 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (308) 236-8491 Securities registered pursuant to Section 12(b) of the Act: Title of class Name of Each Exchange on Which Registered Common Stock, $.01 par value New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No o Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes o No þ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for a shorter period that the registrant was required to submit and post such files). Yes þ No o Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o Indicate by check mark whether the registrant is a large accelerated filer, accelerated filer, non-accelerated filer, or smaller reporting company. (See definition of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act). Check one. þ Large accelerated filer; o Accelerated filer; o Non-accelerated filer; o Smaller Reporting Company Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No þ The aggregate market value (based on the closing price of the New York Stock Exchange) of the common stock of the registrant held by non-affiliates of the registrant was $768,354,793 on July 30, 2016. For purposes of this response, executive officers and directors are deemed to be the affiliates of the Registrant and the holdings by non-affiliates was computed as 28,052,385 shares. The number of shares outstanding of the Registrant's Common Stock, as of March 24, 2017 , was 48,848,725 . DOCUMENTS INCORPORATED BY REFERENCE Portions of the definitive Proxy Statement for the registrant’s 2017 Annual Meeting of Shareholders to be held May 30, 2017 are incorporated by reference in Part III.
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UNITED STATESSECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549FORM 10-K
xANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OFTHE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended January 28, 2017
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OFTHE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from ____________ to ____________
Commission File Number: 001-12951
THE BUCKLE, INC.(Exact name of Registrant as specified in its charter)
Nebraska 47-0366193(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
2407 West 24th Street, Kearney, Nebraska 68845-4915
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (308) 236-8491
Securities registered pursuant to Section 12(b) of the Act:
Title of class Name of Each Exchange on Which Registered
Common Stock, $.01 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þNo o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes oNo þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes þNo o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted andposted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for a shorter period that the registrant was required to submit and post such files). Yes þNoo
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant’sknowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant is a large accelerated filer, accelerated filer, non-accelerated filer, or smaller reporting company. (See definition of “largeaccelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act). Check one.
þLarge accelerated filer; oAccelerated filer; oNon-accelerated filer; oSmaller Reporting Company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes oNo þ
The aggregate market value (based on the closing price of the New York Stock Exchange) of the common stock of the registrant held by non-affiliates of the registrant was$768,354,793 on July 30, 2016. For purposes of this response, executive officers and directors are deemed to be the affiliates of the Registrant and the holdings by non-affiliateswas computed as 28,052,385 shares.
The number of shares outstanding of the Registrant's Common Stock, as of March 24, 2017 , was 48,848,725 .
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement for the registrant’s 2017 Annual Meeting of Shareholders to be held May 30, 2017 are incorporated by reference in Part III.
THE BUCKLE, INC.FORM 10-K
January 28, 2017
Table of Contents
PagesPart I
Item 1. Business 3 Item 1A. Risk Factors 12 Item 1B. Unresolved Staff Comments 15 Item 2. Properties 15 Item 3. Legal Proceedings 16 Item 4. Mine Safety Disclosures 16
Part II Item 5. Market for Registrant's Common Equity, Related Shareholder Matters, and Issuer Purchases of Equity Securities 16 Item 6. Selected Financial Data 19 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 20 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 29 Item 8. Financial Statements and Supplementary Data 30 Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure 49 Item 9A. Controls and Procedures 49 Item 9B. Other Information 51
Part III Item 10. Directors, Executive Officers, and Corporate Governance 51 Item 11. Executive Compensation 51 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 51 Item 13. Certain Relationships and Related Transactions and Director Independence 51 Item 14. Principal Accountant Fees and Services 51
Part IV Item 15. Exhibits and Financial Statement Schedule 51
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PART I
ITEM 1 - BUSINESS
The Buckle, Inc. (the "Company") is a retailer of medium to better-priced casual apparel, footwear, and accessories for fashion-conscious young men and women.As of January 28, 2017 , the Company operated 467 retail stores in 44 states throughout the United States under the names "Buckle" and "The Buckle." TheCompany markets a wide selection of mostly brand name casual apparel including denims, other casual bottoms, tops, sportswear, outerwear, accessories, andfootwear. The Company emphasizes personalized attention to its customers and provides customer services such as free hemming, free gift-wrapping, easylayaways, the Buckle private label credit card, and a guest loyalty program. Most stores are located in regional shopping malls and lifestyle centers, and this is theCompany's strategy for future expansion. The majority of the Company's central office functions, including purchasing, pricing, accounting, advertising, anddistribution, are controlled from its headquarters and distribution center in Kearney, Nebraska. The Company’s men’s buying team and a portion of its marketingteam are located in Overland Park, Kansas.
Incorporated in Nebraska in 1948, the Company commenced business under the name Mills Clothing, Inc., a conventional men's clothing store with only onelocation. In 1967, a second store, under the trade name Brass Buckle, was purchased. In the early 1970s, the store image changed to that of a jeans store with awide selection of denims and shirts. The first branch store was opened in Columbus, Nebraska, in 1976. In 1977, the Company began selling young women'sapparel and opened its first mall store. The Company changed its corporate name to The Buckle, Inc. on April 23, 1991. The Company has experienced significantgrowth over the past ten years, growing from 350 stores at the start of fiscal 2007 to 467 stores at the end of fiscal 2016 . All references herein to fiscal 2016 referto the 52-week period ended January 28, 2017 . Fiscal 2015 refers to the 52-week period ended January 30, 2016 and fiscal 2014 refers to the 52-week periodended January 31, 2015 . All references herein to the “Company”, “Buckle”, “we”, “us”, or similar terms refer to The Buckle, Inc. and its subsidiary.
The Company's principal executive offices are located at 2407 West 24th Street, Kearney, Nebraska 68845. The Company's telephone number is (308) 236-8491.The Company publishes its corporate web site at www.buckle.com .
Available Information The Company’s annual reports on Form 10-K, along with all other reports and amendments filed with or furnished to the Securities and Exchange Commission, arepublicly available free of charge on the Investor Information section of the Company’s website at www.buckle.com as soon as reasonably practicable after theCompany files such materials with, or furnishes them to, the Securities and Exchange Commission. The Company’s corporate governance policies, ethics code,and Board of Directors’ committee charters are also posted within this section of the website. The information on the Company’s website is not part of this or anyother report The Buckle, Inc. files with, or furnishes to, the Securities and Exchange Commission.
Marketing and Merchandising
The Company's marketing and merchandising strategy is designed to create customer loyalty by offering a wide selection of key brand name and private labelmerchandise and providing a broad range of value-added services. The Company believes it provides a unique specialty apparel store experience with merchandisedesigned to appeal to the fashion-conscious 15 to 30-year old. The merchandise mix includes denims, casual bottoms, tops, sportswear, outerwear, accessories, andfootwear. Denim is a significant contributor to total sales ( 42.2% of fiscal 2016 net sales) and is a key to the Company's merchandising strategy. The Companybelieves it attracts customers with its wide selection of branded and private label denim and a wide variety of fits, finishes, and styles. Tops are also significantcontributors to total sales ( 30.8% of fiscal 2016 net sales). The Company strives to provide a continually changing selection of the latest casual fashions.
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The percentage of net sales over the past three fiscal years of the Company's major product lines are set forth in the following table:
Fiscal Years Ended
Merchandise GroupJanuary 28,
2017 January 30,
2016 January 31,
2015
Denims 42.2% 42.5% 43.7%Tops (including sweaters) 30.8 31.0 30.8Accessories 9.2 8.9 8.6Sportswear/fashions 6.5 6.4 6.2Footwear 5.9 6.0 5.9Outerwear 2.0 2.1 2.3Casual bottoms 1.9 1.5 1.2Other 1.5 1.6 1.3Total 100.0% 100.0% 100.0% Brand name merchandise accounted for approximately 65% of the Company's sales during fiscal 2016 . The remaining balance is comprised of private labelmerchandise from exclusive brands including BKE, Buckle Black, BKE Boutique, Red by BKE, Daytrip denim, Gimmicks, Gilded Intent, Outpost Makers,Departwest, and Veece. The Company's merchandisers continually work with manufacturers and vendors to produce brand name merchandise that they believe isexclusive in terms of color, style, and fit. While the brands offered by the Company change to meet current customer preferences, the Company currently offersdenims from brands such as Miss Me, Rock Revival, Big Star Vintage, Buffalo Jeans, KanCan, Flying Monkey, and Levi's. Other key brands include Hurley,Billabong, Affliction, American Fighter, Fast & Furious, Oakley, Fox, Puma, Obey, RVCA, Salvage, 7 Diamonds, Nixon, Amuse Society, Free People, WhiteCrow, Corral, Reef, Kustom, Timberland, UGG, TOMS, SAXX, Stance, Lokai, Ray-Ban, and Fossil. The Company expects that brand name merchandise willcontinue to constitute the majority of sales.
Management believes the Company provides a unique store environment by maintaining a high level of personalized service and by offering a wide selection offashionable, quality merchandise. The Company believes it is essential to create an enjoyable shopping environment and, in order to fulfill this mission, it employshighly motivated employees who provide personal attention to customers. Each salesperson is educated to help create a complete look for the customer by helpingthem find the best fits and showing merchandise as coordinating outfits. The Company also incorporates specialized services such as free hemming, free giftwrapping, layaways, a guest loyalty program, the Buckle private label credit card, and a special order system that allows stores to obtain specifically requestedmerchandise from other Company stores or from the Company's online order fulfillment center. Customers are encouraged to use the Company's layaway plan,which allows customers to make a partial payment on merchandise that is then held by the store until the balance is paid. For the past three fiscal years, an averageof between approximately 3.2% to 3.7% of net sales have been made on a layaway basis, which is recorded as revenue upon delivery of the merchandise to thecustomer.
Merchandising and pricing decisions are made centrally; however, the Company's distribution system allows for variation in the mix of merchandise distributed toeach store. This allows individual store inventories to be tailored to reflect differences in customer buying patterns at various locations. In addition, to ensure acontinually fresh look in its stores, the Company ships new merchandise daily to most stores. The Company also has a transfer program that shifts certainmerchandise to locations where it is selling best. This distribution and transfer system helps to maintain customer satisfaction by providing in-stock popular itemsand reducing the need to markdown slow-moving merchandise at a particular location. The Company believes the reduced markdowns justify the incrementaldistribution costs associated with the transfer system. The Company does not hold store-wide off-price sales at any time.
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The Company continually evaluates its store design as part of the overall shopping experience and feels the fiscal 2002 design continues to be well received byboth guests and developers. This store design contains warm wood fixtures and floors, real brick finishes, and an appealing ceiling and lighting layout that creates acomfortable environment for the guest to shop. The Company has been able to modify the store design for specialized venues including lifestyle centers and largermall fronts. The signature Buckle-B icon and red color are used throughout the store on fixtures, graphic images, and print materials to reinforce the brand identity.To enhance selling and product presentation, the Company continues to update the fixtures in its stores. New tables and fixtures have been added to the Company’ssignature store design in each of the last several fiscal years. The new tables and fixtures were also rolled out to select existing stores to update their looks as well.
Marketing and Advertising
In fiscal 2016 , the Company spent $16.2 million, or 1.7% of net sales, on seasonal marketing campaigns, advertising, promotions, online marketing, and in-storepoint-of-sale materials. Seasonal image and promotional signage is presented in store window displays and on merchandising presentations throughout the store tocomplement the product and reinforce the brand's image. Promotions such as sweepstakes, gift with purchase offers, and special events are offered to enhance theguest’s shopping experience. Seasonal image guides, featuring current fashion trends and product selection, are distributed in the stores, at special events, and innew markets. Buckle partners with key merchandise vendors on joint advertising and promotional opportunities that expand the marketing reach and positionBuckle as the destination store for these specialty branded fashions.
The Company also offers programs to build and strengthen its relationship with loyal guests. Two different programs work to achieve these goals. In fiscal 2016,the Company phased out its previous frequent shopper program (the Buckle Primo Card) and replaced it with an improved electronic loyalty program calledBuckle Guest Loyalty. Both the former Buckle Primo Card and the new Buckle Guest Loyalty program are available to all guests who elect to participate and therewards structure for both programs is similar. In addition, private label credit card guests receive even more benefits when they use their Buckle Card. The B-Rewards incentive program rewards loyal cardholders with a B-Rewards gift card at the end of each rewards period and invites them back into the store. TheCompany extends other exclusive benefits to active Buckle cardholders such as special bonus B-Rewards periods, targeted mailings, and exclusive gift withpurchase offers. The Company provides special Buckle Black and Buckle Exclusive cardholder programs for its most loyal Buckle Card guests. Buckle Blackcardholders must purchase at least $500 and Buckle Exclusive cardholders must spend at least $1,000 annually. These guests receive exclusively designed cardsand enjoy additional benefits including free ground shipping on special orders and online purchases, as well as extended B-Reward redemption periods. TheBuckle Card marketing program is partially funded by Comenity Bank, a third-party bank that owns the Buckle Card accounts .
The Company publishes a corporate web site at www.buckle.com. The Company’s web site serves as a second retail touch-point for cross-channel marketing,reaching a growing online audience. Buckle.com is an e-Commerce enabled channel with an interactive, entertaining, informative, and brand building environmentwhere guests can shop, enter sweepstakes, fill out a wish list, find out about career opportunities, and read the Company’s latest financial news. The Companymaintains an opt-in email database. National email campaigns are sent bi-monthly and targeted weekly messages are sent notifying guests of the latest storepromotions and product offerings. Search engine and affiliate marketing programs are managed to increase online and in-store traffic as well as conversion rates.Buckle’s online store was launched April 26, 1999 as a marketing tool, to extend the Company’s brand beyond the physical locations. The Company launched acompletely redesigned Buckle.com on a new e-Commerce platform on June 8, 2016. The new site provided several updates and enhancements designed to improveboth the performance of the site and the overall shopping experience.
Store Operations
The Company has an Executive Vice President of Stores, a Vice President of Sales, 3 Directors of Sales, 4 Regional Managers, 25 District Managers, and 80 AreaManagers. Certain district managers and all area managers also serve as manager of their home base store. In general, each store has 1 manager, 1 or 2 assistantmanagers, 1 to 3 additional full-time salespeople, and up to 20 part-time salespeople. Most stores have peak levels of staff during the back-to-school and Christmasseasons. Almost every location also employs an alterations person.
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The Company places great importance on educating quality personnel. In addition to sharing career opportunities with current Buckle employees, the Companyalso recruits interns and management trainees from college campuses. A majority of the Company’s store managers, all of its area and district managers, and mostof its executive management team are former salespeople, including President and CEO, Dennis H. Nelson, and Chairman, Daniel J. Hirschfeld. Recognizing talentand promoting managers from within allows the Company to build a strong foundation for management.
Store managers receive compensation in the form of a base salary and incentive bonuses. District and area managers also receive added incentives based upon theperformance of stores in their district/area. Store managers perform sales training for new employees at the store level.
The Company has established a comprehensive program stressing the prevention and control of shrinkage losses. Steps taken to reduce shrinkage includemonitoring cash refunds, voids, inappropriate discounts, employee sales, and returns-to-vendor. The Company also has electronic article surveillance systems in allof the Company’s stores as well as surveillance camera systems in approximately 99% of the stores. As a result, the Company achieved a merchandise shrinkagerate of 0.6% of net sales in both fiscal 2016 and fiscal 2015 and 0.5% of net sales in fiscal 2014 .
The average store is approximately 5,100 square feet (of which the Company estimates an average of approximately 80% is selling space), and stores range in sizefrom 2,900 square feet to 8,475 square feet.
Purchasing and Distribution
The Company has an experienced buying team. The buying team is led by the Vice President of Women’s Merchandising and Senior Vice President of Men’sMerchandising, who have over 50 years of combined experience with the Company. The experience and leadership within the buying team contributessignificantly to the Company’s success by enabling the buying team to react quickly to changes in fashion and by providing extensive knowledge of sources forboth branded and private label goods.
The Company purchases products from manufacturers within the United States as well as from agents who source goods from foreign manufacturers. TheCompany's merchandising team shops and monitors fashion to stay abreast of the latest trends. The Company continually monitors styles, quality, and deliveryschedules. The Company has not experienced any material difficulties with merchandise manufactured in foreign countries. The Company does not have long-termor exclusive contracts with any brand name manufacturer, private label manufacturer, or supplier. The Company plans its private label production with privatelabel vendors three to six months in advance of product delivery. The Company requires its vendors to sign and adhere to its Code of Conduct and Standards ofEngagement, which addresses adherence to legal requirements regarding employment practices and health, safety, and environmental regulations.
In fiscal 2016 , Miss Me/Rock Revival accounted for 22.5% of the Company’s net sales and Axis Denim (which produces private label denim for the Company)accounted for 11.2% of net sales. No other vendor accounted for more than 10% of the Company’s net sales. Other current significant vendors include Big StarVintage, Buffalo Jeans, KanCan, Flying Monkey, Levi's, Hurley, Billabong, Affliction, American Fighter, Fast & Furious, Oakley, Fox, Puma, Obey, RVCA,Salvage, 7 Diamonds, Nixon, Amuse Society, Free People, White Crow, Corral, Reef, Kustom, Timberland, UGG, TOMS, SAXX, Stance, Lokai, Ray-Ban, andFossil. The Company continually strives to offer brands that are currently popular with its customers and, therefore, the Company's suppliers and purchases fromspecific vendors may vary significantly from year to year.
Buckle stores generally carry the same merchandise, with quantity and seasonal variations based upon historical sales data, climate, and perceived local customerdemand. The Company uses a centralized receiving and distribution center located in Kearney, Nebraska. Merchandise is received daily in Kearney where it issorted, tagged with bar-coded tickets (unless the vendor UPC code is used or the merchandise is pre-ticketed), and packaged for distribution to individual storesprimarily via FedEx. The Company's goal is to ship the majority of its merchandise out to the stores within one to two business days of receipt. This system allowsstores to receive new merchandise almost daily, creating excitement within the store and providing customers with a reason to shop often.
The Company has developed an effective computerized system for tracking merchandise from the time it is checked in at the Company's distribution center until itarrives at the stores and is sold to a customer. The system's function is to ensure that store shipments are delivered accurately and promptly, to account forinventory, and to assist in allocating merchandise among stores. Management can track, on a daily basis, which merchandise is selling at specific locations anddirect transfers of merchandise from one store to another as necessary. This allows stores to carry a reduced inventory while at the same time satisfying customerdemand.
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To reduce inter-store shipping costs and provide timely restocking of in-season merchandise, the Company warehouses a portion of initial shipments for laterdistribution. Sales reports are then used to replenish, on a basis of one to three times each week, those stores that are experiencing the greatest success sellingspecific styles, colors, and sizes of merchandise. This system is also designed to prevent an over-crowded look in the stores at the beginning of a season.
During fiscal 2010, the Company completed construction of a new 240,000 square foot distribution center in Kearney, Nebraska. The Company transitioned to thenew distribution center in September 2010 and the new facility is currently the Company’s only operating store distribution center. The Company also owns twoadditional facilities as part of its home office campus in Kearney, Nebraska (one of which was was completed during the first quarter of fiscal 2015). Thesefacilities serve as the Company's corporate headquarters and house its online fulfillment and customer service center.
Store Locations and Expansion Strategies
As of March 24, 2017, the Company operated 465 stores in 44 states. The existing stores are in 4 downtown locations, 10 strip centers, 57 lifestyle centers, and 394shopping malls. The Company anticipates opening approximately 2 new stores in fiscal 2017 . For fiscal 2017 , one of the new stores is expected to be located in alifestyle center and one is expected to be located in a shopping mall. The following table lists the location of existing stores as of March 24, 2017:
Location of StoresState Number of Stores State Number of Stores State Number of Stores
Alabama 7 Maryland 2 Oklahoma 13Alaska 1 Massachusetts 1 Oregon 6Arizona 12 Michigan 19 Pennsylvania 10Arkansas 7 Minnesota 12 Rhode Island 1California 15 Mississippi 5 South Carolina 4Colorado 14 Missouri 14 South Dakota 3Florida 25 Montana 5 Tennessee 12Georgia 10 Nebraska 14 Texas 54Idaho 7 Nevada 5 Utah 11Illinois 18 New Jersey 2 Virginia 6Indiana 15 New Mexico 5 Washington 14Iowa 17 New York 4 West Virginia 6Kansas 17 North Carolina 13 Wisconsin 12Kentucky 6 North Dakota 4 Wyoming 2Louisiana 11 Ohio 24 Total 465
Buckle has grown significantly over the past ten years, with the number of stores increasing from 350 at the beginning of fiscal 2007 to 467 at the end of fiscal2016 . The Company intends to open new stores only when management believes there is a reasonable expectation of satisfactory results.
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The following table sets forth information regarding store openings and closings from the beginning of fiscal 2007 through the end of fiscal 2016 :
Total Number of Stores Per YearFiscalYear
Open at start of year Opened in Current Year Closed in Current Year
Open at end of year
2007 350 20 2 3682008 368 21 2 3872009 387 20 6 4012010 401 21 2 4202011 420 13 2 4312012 431 10 1 4402013 440 13 3 4502014 450 16 6 4602015 460 9 1 4682016 468 5 6 467
The Company's criteria used when considering a particular location for expansion include:
• Market area, including proximity to existing markets to capitalize on name recognition;• Trade area population (number, average age, and college population);• Economic vitality of market area;• Mall location, anchor tenants, tenant mix, and average sales per square foot;• Available location within a mall, square footage, storefront width, and facility of using the current store design;• Availability of experienced management personnel for the market;• Cost of rent, including minimum rent, common area, and extra charges;• Estimated construction costs, including landlord charge backs and tenant allowances.
The Company generally seeks sites of 4,250 to 5,000 square feet for its stores. The projected cost of opening a store is approximately $1.0 million, includingconstruction costs of approximately $0.8 million (prior to any construction allowance received) and inventory costs of approximately $0.2 million, net of accountspayable.
The Company anticipates opening approximately 2 new stores during fiscal 2017 and completing approximately 7 full remodels. The construction costs for a fullremodel are comparable to those of a new store. The Company also plans to complete several smaller store remodeling projects during fiscal 2017 . The Companyanticipates capital spending of approximately $25.0 to $30.0 million during fiscal 2017 , which includes primarily new store and store remodeling projects and ITinvestments.
The Company's ability to expand in the future will depend, in part, on general business conditions, the ability to find suitable malls with acceptable sites onsatisfactory terms, and the readiness of trained store managers. There can be no assurance that the Company's expansion plans will be fulfilled in whole or in part,or that leases under negotiation for planned new sites will be obtained on terms favorable to the Company.
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Management Information Systems
The Company's management information systems ("MIS") and electronic data processing systems ("EDP") consist of a full range of retail, financial, andmerchandising systems, including purchasing, inventory distribution and control, sales reporting, accounts payable, and merchandise management.
The system includes PC based point-of-sale ("POS") registers in each store. The registers trickle transactions to a central server using a virtual private network forcollection of comprehensive data, including complete item-level sales information and employee time clocking. The transactions are then swept into the centralcomputer (IBM iSeries). Price updates are sent daily for the price lookup (“PLU”) file maintained within the POS registers.
Each weekday morning, the Company initiates an electronic "sweep" of the individual store bank accounts to the Company's primary concentration account. Thisallows the Company to meet its obligations and invest cash on a timely basis.
Management monitors the performance of each of its stores on a continual basis. Daily information is used to evaluate inventory, determine markdowns, analyzeprofitability, and assist management in the scheduling and compensation of employees.
The PLU system allows management to control merchandise pricing centrally, permitting faster and more accurate processing of sales at the store and themonitoring of specific inventory items to confirm that centralized pricing decisions are carried out in each of the stores. Management is able to direct all pricechanges, including promotional, clearance, and markdowns on a central basis and estimate the financial impact of such changes.
The virtual private network for communication with the stores also supports the Company’s intranet site. The intranet allows stores to view various types ofinformation from the corporate office. Stores also have access to a variety of tools such as a product search with pictures, product availability, special orderfunctions, inventory management, scheduling, performance tracking, printable forms, links to transmit various requests and information to the corporate office,training videos, email, and information/guidelines from each of the departments at the corporate office. The Company’s network is also structured so that it cansupport additional functionality such as digital video monitoring and digital music content programming at each store location.
The Company is committed to the ongoing review of its MIS and EDP systems to maintain productive, timely information and effective controls. This reviewincludes testing of new products and systems to ensure that the Company is aware of technological developments. Most important, continual feedback is soughtfrom every level of the Company to ensure that information provided is pertinent to all aspects of the Company's operations.
Employees
As of January 28, 2017 , the Company had approximately 8,600 employees - approximately 3,200 of whom were full-time. The Company has an experiencedmanagement team and substantially all of the management team, from store managers through senior management, began work for the Company on the sales floor.The Company experiences high turnover of store and distribution center employees, primarily due to the number of part-time employees. However, the Companyhas not experienced significant difficulty in hiring qualified personnel. Of the total employees, approximately 750 are employed at the corporate headquarters andin the distribution center. None of the Company's employees are represented by a union. Management believes that employee relations are good.
The Company provides medical, dental, vision, life insurance, short-term and long-term disability plans, as well as a 401(k) and a section 125 cafeteria plan(flexible spending account) for eligible employees. To be eligible to participate in the Company's 401(k) plan, employees must be at least 20 years of age and mustachieve one year of service with a minimum of 1,000 hours worked during the year. Eligibility for full-time benefits, other than the 401(k) plan, is based on anemployee's full-time employment status as determined under the Affordable Care Act ("ACA"). As of January 28, 2017, 1,934 employees participated in themedical plan, 1,928 in the dental plan, 1,443 in the vision plan, 2,834 in the basic life insurance plan, 877 in the supplemental life insurance plan, 1,101 in the long-term disability plan, 1,100 in the short-term disability plan, and 2,280 in the cafeteria plan.
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Competition
The men's and women's apparel industries are highly competitive with fashion, selection, quality, price, location, store environment, and service being the principalcompetitive factors. While the Company believes it is able to compete favorably with other merchandisers, including department stores and specialty retailers, withrespect to each of these factors, the Company believes it competes mainly on the basis of customer service and merchandise selection.
In the men's merchandise area, the Company competes primarily with specialty retailers such as Abercrombie & Fitch, American Eagle Outfitters, Gap, H&M,Hollister, Pacific Sunwear, Tilly’s, Urban Outfitters, and Zumiez. The men's market also competes with certain department stores, such as Dillards, Macy’s, Bon-Ton stores, Nordstrom, and certain local or regional department stores and small specialty stores, as well as with mail order and internet retailers.
In the women's merchandise area, the Company competes primarily with specialty retailers such as Abercrombie & Fitch, American Eagle Outfitters, CharlotteRusse, Express, Forever 21, Gap, H&M, Hollister, Maurices, Pacific Sunwear, Tilly's, Urban Outfitters, Wet Seal, and Zumiez. The women's market also competeswith department stores, such as Dillards, Macy’s, Bon-Ton stores, Nordstrom, and certain local or regional department stores and small specialty stores, as well aswith mail order and internet retailers.
Many of the Company's competitors are considerably larger and have substantially greater financial, marketing, and other resources than the Company, and there isno assurance that the Company will be able to compete successfully with them in the future. Furthermore, while the Company believes it competes effectively forfavorable site locations and lease terms, competition for prime locations within a mall is intense.
Trademarks
“BUCKLE”, “THE BUCKLE”, “BUCKLE BLACK”, “BKE”, “BKE BOUTIQUE”, “BKE SOLE”, “DAYTRIP”, “RECLAIM”, “B BELIEVES”, “GIMMICKS”,“BEST OF THE BLUES”, "BKE RED", "BEST BRANDS. FAVORITE JEANS.", "BKE SPORT", "BKE LOUNGE", "BKE RESERVE", "BUCKLEBELIEVES", "FADE BY BKE", "SOLELY BLACK BY BKE", "FITZ + EDDI", "BUCKLE SELECT", "IN THESE BLUES", "POETIC REBEL", "UNTAMEDSOUL", "WILLOW & ROOT", "TWINE & STARK", "INDIE SPIRIT DESIGNS", "BKE CORE", "GILDED INTENT", "#BUCKLEDOUT" and “B” icon arefederally registered trademarks of the Company. The Company believes the strength of its trademarks is of considerable value to its business, and its trademarksare important to its marketing efforts. The Company intends to protect and promote its trademarks as management deems appropriate.
Executive Officers of the Company
The Executive Officers of the Company are listed below, together with brief accounts of their experience and certain other information.
Daniel J. Hirschfeld, age 75. Mr. Hirschfeld is Chairman of the Board of the Company. He has served as Chairman of the Board since April 19, 1991. Prior to thattime, Mr. Hirschfeld served as President and Chief Executive Officer. Mr. Hirschfeld has been involved in all aspects of the Company's business, including thedevelopment of the Company's management information systems.
Dennis H. Nelson, age 67. Mr. Nelson is President and Chief Executive Officer and a Director of the Company. He has held the titles of President and Directorsince April 19, 1991. Mr. Nelson was elected Chief Executive Officer on March 17, 1997. Mr. Nelson began his career with the Company in 1970 as a part-timesalesman while he was attending Kearney State College (now the University of Nebraska - Kearney). While attending college, he became involved inmerchandising and sales supervision for the Company. Upon graduation from college in 1973, Mr. Nelson became a full-time employee of the Company and hehas worked in all phases of the Company's operations since that date. Prior to his election as President and Chief Operating Officer on April 19, 1991, Mr. Nelsonperformed all of the functions normally associated with those positions.
Karen B. Rhoads, age 58. Ms. Rhoads is Senior Vice President of Finance and Chief Financial Officer and a Director of the Company. Ms. Rhoads was elected aDirector on April 19, 1991. She was appointed Senior Vice President of Finance and Chief Financial Officer on March 6, 2014, after having served as VicePresident of Finance and Chief Financial Officer since 1991. She worked in the corporate office while attending Kearney State College (now the University ofNebraska - Kearney) and later worked part-time on the sales floor. Ms. Rhoads practiced as a CPA for 6 1/2 years, during which time she began working on taxand accounting matters for the Company as a client. She has been employed with Buckle since November 1987.
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Brett P. Milkie, age 57 . Mr. Milkie is Senior Vice President of Leasing. He was appointed to this position on March 6, 2014, after having served as VicePresident of Leasing since May 1996. Mr. Milkie was a leasing agent for a national retail mall developer for 6 years prior to joining the Company in January 1992as Director of Leasing.
Kari G. Smith, age 53 . Ms. Smith is Executive Vice President of Stores. She was appointed to this position on February 13, 2014, after having served as VicePresident of Sales since May 2001. Ms. Smith joined the Company in May 1978 as a part-time salesperson. Later she became store manager in Great Bend, Kansasand then began working with other stores as an area manager. Ms. Smith has continued to develop her involvement with the sales management team, helping withmanager meetings and the development of new store managers, as well as providing support for store managers, area managers, and district managers.
Robert M. Carlberg, age 53. Mr. Carlberg is Senior Vice President of Men’s Merchandising. He was appointed to this position on March 6, 2014, after havingserved as Vice President of Men's Merchandising since December 2006. Mr. Carlberg started with the Company as a salesperson and also worked as a storemanager and as an area and district leader while being involved and traveling with the men’s merchandising team. He has been full-time with the merchandisingteam since January 2001.
Kyle L. Hanson, age 52 . Ms. Hanson is Vice President, General Counsel, and Corporate Secretary. She was appointed to this position on March 6, 2014, afterhaving served as General Counsel and Corporate Secretary since May 2001. Ms. Hanson joined the Company in May 1998 as General Counsel. She also workedfor the Company as a part-time salesperson while attending Kearney State College (now the University of Nebraska - Kearney). Ms. Hanson was previously FirstVice President and Trial Attorney for Mutual of Omaha Companies for 2 years and an attorney with the Kutak Rock law firm in Omaha from 1990 to 1996.
Thomas B. Heacock, age 39 . Mr. Heacock is Vice President of Finance, Treasurer, and Corporate Controller. He was appointed to this position on December 8,2014, after having served as Treasurer and Corporate Controller since March 21, 2011. Mr. Heacock has been employed by the Company since October 2003 andhas served as Corporate Controller since February 2007. Prior to joining the Company, he was employed by Ernst & Young, LLP. Mr. Heacock is the son-in-lawof Dennis H. Nelson, who serves as President and Chief Executive Officer and a Director of The Buckle, Inc.
Michelle Hoffman, age 55. Ms. Hoffman is Vice President of Sales. She was appointed to this position on March 6, 2014. Ms. Hoffman has been employed by theCompany since 1979 and has served in various roles of increasing responsibility on the sales team since that time; including salesperson, Store Manager, DistrictManager, and most recently Regional Manager since 2008.
Kelli D. Molczyk, age 38. Ms. Molczyk is Vice President of Women's Merchandising. She was appointed to this position on December 8, 2014. Ms. Molczyk hasbeen employed by the Company since 1999 and has served in various roles on the women's merchandising team since that time, including most recently asDivisional Merchandise Manager.
Diane L. Applegate, age 52. Ms. Applegate is Vice President of Supply Chain and Merchandising Operations. She was appointed to this position on December 8,2014. Ms. Applegate has been employed by the Company since 1983 and has served in various roles of increasing responsibility on the merchandise operations ande-commerce teams, including as Director of Merchandise Operations since 2000.
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ITEM 1A - RISK FACTORS
Cautionary Statement Pursuant to the Private Securities Litigation Reform Act of 1995 and Risk Factors
Certain statements herein, including anticipated store openings, trends in or expectations regarding the Company’s revenue and net earnings growth, comparablestore sales growth, cash flow requirements, and capital expenditures, all constitute “forward-looking statements” within the meaning of the Private SecuritiesLitigation Reform Act of 1995. Such statements are based on currently available operating, financial, and competitive information and are subject to various risksand uncertainties. Actual future results and trends may differ materially depending on a variety of factors, including, but not limited to, changes in product mix,changes in fashion trends and/or pricing, competitive factors, general economic conditions, economic conditions in the retail apparel industry, successful executionof internal performance and expansion plans, and other risks detailed herein and in The Buckle, Inc.’s other filings with the Securities and Exchange Commission.
A forward-looking statement is neither a prediction nor a guarantee of future events or circumstances, and those future events or circumstances may not occur.Users should not place undue reliance on the forward-looking statements, which are accurate only as of the date of this report. The Company is under no obligationto update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. In management’s judgment, the followingare material risk factors:
Dependence on Merchandising/Fashion Sensitivity . The Company’s success is largely dependent upon its ability to gauge the fashion tastes of its customersand to provide merchandise that satisfies customer demand in a timely manner. The Company’s failure to anticipate, identify, or react appropriately and timely tothe changes in fashion trends would reduce the Company’s net sales and profitability. Misjudgments or unanticipated fashion changes could have a negative impacton the Company’s image with its customers, which would also reduce the Company’s net sales and profitability.
Dependence on Private Label Merchandise . Sales from private label merchandise accounted for approximately 35% of net sales for fiscal 2016 and 36% forfiscal 2015 . The Company may increase or decrease the percentage of net sales from private label merchandise in the future. The Company’s private labelproducts generally earn a higher margin than branded products. Thus, reductions in the private label mix would decrease the Company’s merchandise margins and,as a result, reduce net earnings.
Fluctuations in Comparable Store Net Sales Results . The Company’s comparable store net sales results have fluctuated in the past and are expected to continueto fluctuate in the future. A variety of factors affect comparable store sales results, including changes in fashion trends, changes in the Company’s merchandisemix, calendar shifts of holiday periods, actions by competitors, weather conditions, and general economic conditions. As a result of these or other factors, theCompany’s future comparable store sales could decrease, reducing overall net sales and profitability.
Ability to Continue Expansion and Management of Growth . The Company’s continued growth depends on its ability to open and operate stores on a profitablebasis and management’s ability to manage planned expansion. During fiscal 2017 , the Company plans to open two new stores. This expansion is dependent uponfactors such as the ability to locate and obtain favorable store sites, negotiate acceptable lease terms, obtain necessary merchandise, and hire and train qualifiedmanagement and other employees. There may be factors outside of the Company’s control that affect the ability to expand, including general economic conditions.There is no assurance that the Company will be able to achieve its planned expansion or that such expansion will be profitable. If the Company fails to manage itsstore growth, there would be less growth in the Company’s net sales from new stores and less growth in profitability. If the Company opens unprofitable storelocations, there could be a reduction in net earnings, even with the resulting growth in the Company’s net sales.
Ability to Adjust to Changes in Shopping Center Traffic and Consumer Trends Related to E-Commerce Shopping . Shopping patterns have been evolvingrapidly, along with consumers’ ability to shop whenever and wherever they choose. These changing dynamics and increased competition from online retailers haveadversely impacted shopping center traffic in many malls. The Company’s ability to compete effectively in the future is dependent on its ability to continue toprofitably manage both its in-store and e-commerce businesses. The Company considers its unique merchandise selection and its outstanding customer service tobe key differentiators. The Company continues to invest in its e-commerce website and other digital initiatives to drive traffic to both its stores and buckle.com.The Company also continues to expand its omni-channel capabilities to satisfy its guests however they choose to shop. There can, however, be no assurance thatthe Company will be able to successfully integrate both channels and compete successfully with other retailers. The Company’s inability to profitably adapt tochanging consumer preferences would cause a decrease in the Company’s net sales and net earnings.
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Reliance on Key Personnel . The continued success of the Company is dependent to a significant degree on the continued service of key personnel, includingsenior management. The loss of a member of senior management could create additional expense in covering their position as well as cause a reduction in net sales,thus reducing net earnings. The Company’s success in the future will also be dependent upon the Company’s ability to attract and retain qualified personnel. TheCompany’s failure to attract and retain qualified personnel could reduce the number of new stores the Company could open in a year which would cause net salesto decline, could create additional operating expenses, and could reduce overall profitability for the Company.
Dependence on a Single Distribution Facility and Third-Party Carriers . The distribution function for all of the Company’s stores is handled from a singlefacility in Kearney, Nebraska. Any significant interruption in the operation of the distribution facility due to natural disasters, system failures, or other unforeseencauses would impede the distribution of merchandise to the stores, causing a decline in store inventory, a reduction in store sales, and a reduction in Companyprofitability. Interruptions in service by common carriers could also delay shipment of goods to Company store locations. Additionally, there can be no assurancethat the current facilities will be adequate to support the Company’s future growth.
Reliance on Foreign Sources of Production. The Company purchases a portion of its private label merchandise through sourcing agents in foreign markets. Inaddition, some of the Company’s domestic vendors manufacture goods overseas. The Company does not have any long-term merchandise supply contracts and itsimports are subject to existing or potential duties, tariffs, and quotas. The Company faces a variety of risks associated with doing business overseas includingcompetition for facilities and quotas, political instability, possible new legislation relating to imports that could limit the quantity of merchandise that may beimported, imposition of duties, taxes, and other charges on imports, and local business practice and political issues which may result in adverse publicity. TheCompany’s inability to rely on foreign sources of production due to these or other causes could reduce the amount of inventory the Company is able to purchase,hold up the timing on the receipt of new merchandise, and reduce merchandise margins if comparable inventory is purchased from branded sources. Any or all ofthese changes would cause a decrease in the Company’s net sales and net earnings.
Fluctuations in Tax Obligations and Effective Tax Rate. The Company records tax expense based on its estimates of future payments. At any one time, multipletax years are subject to audit by various taxing authorities. There can be no assurance as to the outcome of any current or potential future audits and their impact onthe tax owed by the Company. In addition, the Company's effective tax rate may be materially impacted by changes in tax laws and regulations in the jurisdictionswhere it operates. Such tax law changes, including a border adjustment tax (if enacted), could materially impact the Company's effective tax rate and, therefore, itsnet earnings.
Dependence upon Maintaining Sales and Profit Growth in the Highly Competitive Retail Apparel Industry . The specialty retail industry is highlycompetitive. The Company competes primarily on the basis of fashion, selection, quality, price, location, service, and store environment. The Company faces avariety of competitive challenges, including:
• Anticipating and responding timely to changing customer demands and preferences;• Effectively marketing both branded and private label merchandise to consumers in several diverse market segments and maintaining favorable brand
recognition;• Providing unique, high-quality merchandise in styles, colors, and sizes that appeal to consumers;• Sourcing merchandise efficiently;• Competitively pricing merchandise and creating customer perception of value;• Monitoring increased labor costs, including increases in health care benefits and worker’s compensation and unemployment insurance costs.
There is no assurance that the Company will be able to compete successfully in the future.
Reliance on Consumer Spending Trends . The continued success of the Company depends, in part, upon numerous factors that impact the levels of individualdisposable income and thus, consumer spending. Factors include the political environment, economic conditions, employment, consumer debt, interest rates,inflation, and consumer confidence. A decline in consumer spending, for any reason, could have an adverse effect on the Company’s net sales, gross profits, andresults from operations.
Modifications and/or Upgrades to Information Technology Systems May Disrupt Operations . The Company relies upon its various information systems tomanage its operations and regularly evaluates its information technology in order for management to identify investment opportunities for maintaining, modifying,upgrading, or replacing these systems. There are inherent risks associated with replacing or changing these systems. Any delays, errors in capturing data, ordifficulties in transitioning to these or other new systems, or in integrating these systems with the Company’s current systems, or any other disruptions affectingthe Company’s information systems, could have a material adverse impact on the Company’s business.
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Reliance on Increasingly Complex Information Systems for Management of Distribution, Sales, and Other Functions . If the Company’s informationsystems fail to perform these functions adequately or if the Company experiences an interruption in their operation, including a breach in cyber-security, itsbusiness and results of operations could suffer. All of the Company’s major operations, including distribution, sales, and accounting, are dependent upon theCompany’s complex information systems. The Company’s information systems are vulnerable to damage or interruption from:
• Earthquake, fire, flood, tornado, and other natural disasters;• Power loss, computer systems failure, internet and telecommunications or data network failure;• Hackers, computer viruses, software bugs, or glitches.
Any damage or significant disruption in the operation of such systems, or the failure of the Company’s information systems to perform as expected, could disruptthe Company’s business, result in decreased sales, increased overhead costs, excess inventory, or product shortages and otherwise adversely affect the Company’soperations, financial performance, and financial condition.
Unauthorized Access to, or Accidental Disclosure of, Consumer Personally-Identifiable Information that the Company Collects May Result in SignificantExpenses and Negatively Impact the Company's Reputation and Business. There is growing concern over the security of personal information transmitted overthe internet, consumer identity theft, and user privacy. As part of the Company's normal operations, it receives and maintains confidential information aboutcustomers, employees, and other third parties. The Company employs systems and websites that allow for the secure storage and transmission of proprietary orconfidential information regarding customers, employees, job applicants, and others, including credit card information and personally-identifiable information.Despite safeguards and security processes and protections, the Company’s computer systems may be susceptible to electronic or physical computer break-ins,viruses, and other disruptions and security breaches. Additionally, the Company may not have the resources or technical sophistication to anticipate or preventrapidly evolving types of cyber-attacks. Attacks may be targeted at the Company, its customers, or others who have entrusted the Company with information.Actual or anticipated attacks may cause the Company to incur increasing costs, including costs to deploy additional personnel and protection technologies, trainemployees, and engage third-party experts and consultants. Advances in computer capabilities, new technological discoveries, or other developments may result inthe technology used to protect transaction or other data being breached or compromised. In addition, data and security breaches can also occur as a result of non-technical issues, including intentional or inadvertent breach by employees or by persons with whom the Company has commercial relationships that result in theunauthorized release of personal or confidential information. Any perceived or actual unauthorized disclosure of personally-identifiable information regardingvisitors to the Company’s websites or otherwise, whether through a breach of the Company’s network by an unauthorized party, employee theft, misuse, or error,or otherwise, could harm the Company’s reputation, impair the Company’s ability to attract and retain customers, or subject the Company to claims or litigationarising from damages suffered by consumers, and adversely affect the Company’s operations, financial performance, and financial condition.
Market/Liquidity Risk Related to the Company’s Investments. In prior years, the Company invested a portion of its investments in auction-rate securities(“ARS”). As of January 28, 2017 and January 30, 2016 , $1.7 million and $7.5 million , respectively, of investments were in ARS. ARS have a long-term statedmaturity, but are reset through a “dutch auction” process that occurs every 7 to 49 days, depending on the terms of the individual security. Since February 2008, asignificant number of auctions related to these securities failed, meaning that there was not enough demand to sell the entire issue at auction. The failed auctionshave limited the liquidity of the Company’s investments in ARS. Further auction failures could have a material impact on the Company’s earnings; however, theCompany does not believe further auction failures would have a material impact on its ability to fund its business.
The Company reviews impairments to determine the classification of potential impairments as either “temporary” or “other-than-temporary.” A temporaryimpairment results in an unrealized loss being recorded in other comprehensive income. An impairment that is considered other-than-temporary would berecognized as a loss in the consolidated statements of income. The Company considers various factors in reviewing potential impairments, including the length oftime and extent to which the fair value has been less than the Company’s cost basis, the financial condition and near-term prospects of the issuer, and theCompany’s intent and ability to hold the investments for a period of time sufficient to allow for any anticipated recovery in market value. The Company believes ithas the ability and maintains its intent to hold its investments until recovery of market value occurs or until the ultimate maturity of the investments.
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The Company’s investments in ARS are reported at fair market value, and as of January 28, 2017 , the reported investment amount is net of a $130,000 temporaryimpairment to account for the impairment of certain securities from their stated par value. The Company reported the $130,000 temporary impairment, net of tax,as an “accumulated other comprehensive loss” of $82,000 in stockholders’ equity as of January 28, 2017 . The Company has accounted for the impairment astemporary, as it currently believes that these ARS can be successfully redeemed or liquidated in the future at par value plus accrued interest. The Company reviewsall investments for other-than-temporary impairment ("OTTI") at least quarterly or as indicators of impairment exist. Indicators of impairment include the durationand severity of the decline in market value. In addition, the Company considers qualitative factors including, but not limited to, the financial condition of theinvestee, the credit rating of the investee, and the current and expected market and industry conditions in which the investee operates. Given current marketconditions in the ARS market, the Company may incur additional temporary impairment or OTTI in the future if market conditions persist and the Company isunable to recover the cost of its investments in ARS.
Interest Rate Risk. To the extent that the Company borrows under its line of credit facility, the Company would be exposed to market risk related to changes ininterest rates. As of January 28, 2017 , no borrowings were outstanding under the line of credit facility. The Company is not a party to any derivative financialinstruments. Additionally, the Company is exposed to market risk related to interest rate risk on the cash and investments in interest-bearing securities. Theseinvestments have carrying values that are subject to interest rate changes that could impact earnings to the extent that the Company did not hold the investments tomaturity. If there are changes in interest rates, those changes would also affect the investment income the Company earns on its cash and investments. For eachone-quarter percent decline in the interest/dividend rate earned on cash and investments (approximately a 50% change in the rate earned), the Company’s netincome would decrease approximately $0.5 million or less than $0.01 per share. This amount could vary based upon the number of shares of the Company’s stockoutstanding and the level of cash and investments held by the Company.
The Company cautions that the risk factors described above could cause actual results to vary materially from those anticipated in any forward-looking statementsmade by or on behalf of the Company. Management cannot assess the impact of each factor on the Company’s business or the extent to which any factor, orcombination of factors, may cause actual results to vary from those contained in forward-looking statements.
ITEM 1B - UNRESOLVED STAFF COMMENTS
None.
ITEM 2 - PROPERTIES
All of the store locations operated by the Company are leased facilities. Most of the Company's stores have lease terms of approximately ten years and generally donot contain renewal options. In the past, the Company has not experienced problems renewing its leases, although no assurance can be given that the Company canrenew existing leases on favorable terms. The Company seeks to negotiate extensions on leases for stores undergoing remodeling to provide terms ofapproximately ten years after completion of remodeling. Consent of the landlord generally is required to remodel or change the name under which the Companydoes business. The Company has not experienced problems in obtaining such consent in the past. Most leases provide for a fixed minimum rental cost plus anadditional rental cost based upon a set percentage of sales beyond a specified breakpoint, plus common area and other charges. The current terms of the Company'sleases, including automatic renewal options, expiring on or before January 31 st of each year is as follows:
Year Number of Expiring Leases
2018 882019 642020 722021 482022 402023 282024 312025 and later 96Total 467
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The corporate headquarters and online fulfillment center for the Company are located within a facility purchased by the Company in 1988, which is located inKearney, Nebraska. The building currently provides approximately 261,200 square feet of space, which includes approximately 82,200 square feet related to theCompany’s 2005 addition. The Company also owns a 40,000 square foot building with warehouse and office space near the corporate headquarters. The Companyacquired the lease on the land the building is built upon. The lease is currently in the fourth of ten five-year renewal options, which expires on October 31, 2021.During fiscal 2010, the Company completed construction of a new 240,000 square foot distribution center in Kearney, Nebraska. The Company transitioned to thenew distribution center in September 2010 and the new facility is currently the Company’s only operating store distribution center. In fiscal 2015, the Companycompleted construction of a new office building as a part of its home office campus in Kearney, Nebraska. The new building provides 80,000 square feet ofadditional office space, which was necessary to support the Company's continued growth.
ITEM 3 - LEGAL PROCEEDINGS
From time to time, the Company is involved in litigation relating to claims arising out of its operations in the normal course of business. As of the date of this form,the Company was not engaged in legal proceedings that are expected, individually or in the aggregate, to have a material effect on the Company.
ITEM 4 - MINE SAFETY DISCLOSURES
Not applicable.
PART II
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED SHAREHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITYSECURITIES
The Company’s common stock trades on the New York Stock Exchange under the symbol BKE. Prior to the Company’s initial public offering on May 6, 1992,there was no public market for the Company’s common stock.
Dividend Payments
During fiscal 2014, the Company paid cash dividends of $0.22 per share in each of the first three quarters and $0.23 per share in the fourth quarter and also paid aspecial cash dividend of $2.77 per share in the fourth quarter. During fiscal 2015, the Company paid cash dividends of $0.23 per share in each of the first threequarters and $0.25 per share in the fourth quarter and also paid a special cash dividend of $1.00 per share in the fourth quarter. During fiscal 2016, the Companypaid cash dividends of $0.25 per share in each of the four quarters and also paid a special cash dividend of $0.75 per share in the fourth quarter. The Companyplans to continue its quarterly dividends during fiscal 2017 .
Issuer Purchases of Equity Securities
The following table sets forth information concerning purchases made by the Company of its common stock for each of the months in the fiscal quarter endedJanuary 28, 2017 :
Total Numberof SharesPurchased
Average Price Paid PerShare
Total Number ofShares Purchasedas Part of PubliclyAnnounced Plans
ApproximateNumber of Shares Yet To Be
Purchased UnderPublicly Announced Plans
Oct. 30, 2016 to Nov. 26, 2016 — — — 440,207Nov. 27, 2016 to Dec. 31, 2016 — — — 440,207Jan. 1, 2017 to Jan. 28, 2017 — — — 440,207Total — — —
The Board of Directors authorized a 1,000,000 share repurchase plan on November 20, 2008. The Company has 440,207 shares remaining to complete thisauthorization.
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Stock Price Performance Graph
The graph below compares the cumulative total return on common shares of the Company for the last five fiscal years with the cumulative total return on theRussell 2000 Stock Index and a peer group of Retail Trade Stocks:
Total Return Analysis 1/28/2012 2/2/2013 2/1/2014 1/31/2015 1/30/2016 1/28/2017
The Buckle , Inc. $ 100.00 $ 121.81 $ 119.69 $ 147.53 $ 87.80 $ 68.36Russell 2000 Index 100.00 115.77 145.58 152.00 136.92 184.02New Peer Group 100.00 121.10 119.39 116.23 96.84 74.43Old Peer Group 100.00 134.01 135.93 165.20 149.12 114.56
In addition to the Company, the New Peer Group included in the above performance graph includes the following retail company stocks: AEO, ANF, GPS, LB,TLYS, URBN, ZUMZ, EXPR, GES, ASNA, and GCO. In addition to the Company, the Old Peer Group includes the following retail company stocks: AEO, ANF,AROPQ, GPS, LB, PSUNQ, TLYS, URBN, ZUMZ, EXPR, and GES. The Company replaced AROPQ and PSUNQ with ASNA and GCO and believes the NewPeer Group provides a meaningful comparison in terms of comparable products, revenue composition, and size.
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The following table lists the Company’s quarterly market range for fiscal years 2016 , 2015 , and 2014 , as reported by the New York Stock Exchange:
Fiscal Years Ended January 28, 2017 January 30, 2016 January 31, 2015Quarter High Low High Low High Low
First $ 35.02 $ 27.54 $ 53.41 $ 44.70 $ 48.44 $ 41.45Second 29.19 22.00 47.36 40.54 49.15 41.96Third 28.67 20.60 45.45 33.44 50.04 44.54Fourth 27.10 19.95 36.16 26.05 56.13 47.61
The number of record holders of the Company’s common stock as of March 24, 2017 was 465. Based upon information from the principal market makers, theCompany believes there are more than 20,000 beneficial owners. The closing price of the Company’s common stock on March 24, 2017 was $17.50.
Additional information required by this item appears in the Notes to Consolidated Financial Statements under Footnote J "Stock-Based Compensation" on pages 46to 47 of this report and is incorporated by reference.
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ITEM 6 - SELECTED FINANCIAL DATA
SELECTED FINANCIAL DATA (Amounts in Thousands Except Share, Per Share Amounts, and Selected Operating Data)
Fiscal Years Ended
January 28,
2017 January 30,
2016 January 31,
2015 February 1,
2014 February 2,
2013 (d)Income Statement Data Net sales $ 974,873 $ 1,119,616 $ 1,153,142 $ 1,128,001 $ 1,124,007
Cost of sales (including buying, distribution, and
occupancy costs) 577,705 638,215 645,810 628,856 624,692 Gross profit 397,168 481,401 507,332 499,145 499,315 Selling expenses 205,933 212,531 212,688 206,893 201,963 General and administrative expenses 38,475 39,282 37,671 35,258 39,177 Income from operations 152,760 229,588 256,973 256,994 258,175 Other income, net 3,511 5,236 2,723 3,462 3,524 Income before income taxes 156,271 234,824 259,696 260,456 261,699 Provision for income taxes 58,310 87,541 97,132 97,872 97,394 Net income $ 97,961 $ 147,283 $ 162,564 $ 162,584 $ 164,305 Basic earnings per share $ 2.04 $ 3.06 $ 3.39 $ 3.41 $ 3.47 Diluted earnings per share $ 2.03 $ 3.06 $ 3.38 $ 3.39 $ 3.44 Dividends declared per share (a) $ 1.75 $ 1.94 $ 3.66 $ 2.02 $ 5.30 Selected Operating Data Stores open at end of period 467 468 460 450 440 Average sales per square foot $ 370 $ 430 $ 459 $ 461 $ 475 Average sales per store (000's) $ 1,860 $ 2,180 $ 2,321 $ 2,318 $ 2,380 Comparable store sales change (b) (13.5)% (4.4)% —% —% 2.1% Balance Sheet Data (c) Working capital $ 287,841 $ 255,271 $ 202,318 $ 218,756 $ 147,917 Long-term investments $ 18,092 $ 33,826 $ 43,698 $ 43,436 $ 35,735 Total assets $ 579,847 $ 572,773 $ 542,993 $ 546,293 $ 477,974 Long-term debt $ — $ — $ — $ — $ — Stockholders' equity $ 430,539 $ 412,643 $ 355,278 $ 361,930 $ 289,649
(a) During fiscal 2012, cash dividends were $0.20 per share in each of the four quarters. The Company also paid a special cash dividend of $4.50 per share in thefourth quarter of fiscal 2012. During fiscal 2013, cash dividends were $0.20 per share in each of the first three quarters and $0.22 per share in the fourthquarter. The Company also paid a special cash dividend of $1.20 per share in the fourth quarter of fiscal 2013. During fiscal 2014, cash dividends were $0.22per share in each of the first three quarters and $0.23 per share in the fourth quarter. The Company also paid a special cash dividend of $2.77 per share in thefourth quarter of fiscal 2014. During fiscal 2015, cash dividends were $0.23 per share in each of the first three quarters and $0.25 per share in the fourthquarter. The Company also paid a special cash dividend of $1.00 per share in the fourth quarter of fiscal 2015. During fiscal 2016, cash dividends were $0.25per share in each of the four quarters. The Company also paid a special cash dividend of $0.75 per share in the fourth quarter of fiscal 2016.
(b) Stores are deemed to be comparable stores if they were open in the prior year on the first day of the fiscal period presented. Stores which have beenremodeled, expanded, and/or relocated, but would otherwise be included as comparable stores, are not excluded from the comparable store sales calculation.Prior to February 1, 2015, online sales were excluded from comparable store sales. For fiscal periods beginning on of after February 1, 2015, however, theCompany began including online sales in its reported comparable store sales.
(c) At the end of the period.
(d) Consists of 53 weeks.
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ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the consolidated financial statements and notes thereto of the Company included in this Form 10-K.The following is management’s discussion and analysis of certain significant factors which have affected the Company’s financial condition and results ofoperations during the periods included in the accompanying consolidated financial statements included in this Form 10-K.
EXECUTIVE OVERVIEW
Company management considers the following items to be key performance indicators in evaluating Company performance.
ComparableStoreSales– Stores are deemed to be comparable stores if they were open in the prior year on the first day of the fiscal period being presented. Storeswhich have been remodeled, expanded, and/or relocated, but would otherwise be included as comparable stores, are not excluded from the comparable store salescalculation. Prior to February 1, 2015, online sales were excluded from comparable store sales. For fiscal periods beginning on or after February 1, 2015, however,online sales are included in comparable store sales. Management considers comparable store sales to be an important indicator of current Company performance,helping leverage certain fixed costs when results are positive. Negative comparable store sales results could reduce net sales and have a negative impact onoperating leverage, thus reducing net earnings.
Net Merchandise Margins– Management evaluates the components of merchandise margin including initial markup and the amount of markdowns during aperiod. Any inability to obtain acceptable levels of initial markups or any significant increase in the Company’s use of markdowns could have an adverse effect onthe Company’s gross margin and results of operations.
OperatingMargin– Operating margin is a good indicator for management of the Company’s success. Operating margin can be positively or negatively affected bycomparable store sales, merchandise margins, occupancy costs, and the Company’s ability to control operating costs.
CashFlowandLiquidity(workingcapital)– Management reviews current cash and short-term investments along with cash flow from operating, investing, andfinancing activities to determine the Company’s short-term cash needs for operations and expansion. The Company believes that existing cash, short-terminvestments, and cash flow from operations will be sufficient to fund current and long-term anticipated capital expenditures and working capital requirements forthe next several years.
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RESULTS OF OPERATIONS
The following table sets forth certain financial data expressed as a percentage of net sales and the percentage change in the dollar amount of such items comparedto the prior period:
Percentage of Net Sales Percentage Increase For Fiscal Years Ended (Decrease)
January 28,
2017 January 30,
2016 January 31,
2015Fiscal Year 2015 to
2016 Fiscal Year 2014 to
2015
Net sales 100.0% 100.0% 100.0% (12.9)% (2.9)%Cost of sales (including buying, distribution,and occupancy costs) 59.3% 57.0% 56.0% (9.5)% (1.2)%
Gross profit 40.7% 43.0% 44.0% (17.5)% (5.1)%Selling expenses 21.1% 19.0% 18.4% (3.1)% (0.1)%General and administrative expenses 3.9% 3.5% 3.3% (2.1)% 4.3 %Income from operations 15.7% 20.5% 22.3% (33.5)% (10.7)%Other income, net 0.3% 0.5% 0.2% (32.9)% 92.3 %Income before income taxes 16.0% 21.0% 22.5% (33.5)% (9.6)%Provision for income taxes 6.0% 7.8% 8.4% (33.4)% (9.9)%Net income 10.0% 13.2% 14.1% (33.5)% (9.4)%
Fiscal 2016 Compared to Fiscal 2015
Net sales for the 52-week fiscal year ended January 28, 2017 , decreased 12.9% to $974.9 million from net sales of $1.120 billion for the 52-week fiscal year endedJanuary 30, 2016 . Comparable store net sales for the 52-week fiscal year decreased 13.5% from comparable store net sales for the prior year 52-week period endedJanuary 30, 2016 . The comparable store sales decline was primarily attributable to a 10.2% reduction in the number of transactions at comparable stores during theyear and a 4.1% reduction in the average retail price per piece of merchandise sold, which were partially offset by a 1.7% increase in the average number of unitssold per transaction. Comparable store sales for the year were also impacted by both reward redemptions and accruals for estimated future rewards (which arerecorded as reductions to revenue) related to the Company's new Guest Loyalty program, which launched during the fiscal quarter ended April 30, 2016. Absentthe $15.4 million impact related to the new loyalty program, total net sales for the 52-week fiscal year ended January 28, 2017 were down 11.5% and comparablestore net sales were down 12.2%. The comparable store sales decline for the year was partially offset by the inclusion of a full year of operating results for the 9new stores opened during fiscal 2015 and to the opening of 5 new stores during fiscal 2016 . Online sales for the fiscal year decreased 5.4% to $99.8 million for the52-week fiscal year ended January 28, 2017 compared to $105.5 million for the 52-week fiscal year ended January 30, 2016 . Average sales per square foot forfiscal 2016 decreased 13.8% from $430 to $370. Total square footage as of January 28, 2017 was 2.392 million compared to 2.378 million as of January 30, 2016 .
The Company’s average retail price per piece of merchandise sold decreased $2.12, or 4.1%, during fiscal 2016 compared to fiscal 2015 . This $2.12 decrease wasprimarily attributable to the following changes (with their corresponding effect on the overall average price per piece): a 5.2% reduction in average denim pricepoints (-$1.13), a 10.7% reduction in average footwear price points (-$0.35), a 3.2% reduction in average knit shirt price points (-$0.35), a 5.9% reduction inaverage woven shirt price points (-$0.23), and a reduction in average price points for certain other merchandise categories (-$0.33); which were partially offset by ashift in the merchandise mix ($0.27). These changes are primarily a reflection of merchandise shifts in terms of brands and product styles, fabrics, details, andfinishes.
Gross profit after buying, distribution, and occupancy costs decreased $84.2 million from $481.4 million in fiscal 2015 to $397.2 million in fiscal 2016 . As apercentage of net sales, gross profit was 40.7% in fiscal 2016 compared to 43.0% in fiscal 2015 . The decrease was primarily attributable to deleveragedoccupancy, buying, and distribution expenses as a result of the comparable store sales decline (2.55%, as a percentage of net sales), which was partially offset byan increase in merchandise margins (0.25%, as a percentage of net sales). Merchandise shrinkage was 0.6% of net sales for both fiscal 2016 and fiscal 2015 .
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Selling expenses decreased from $212.5 million in fiscal 2015 to $205.9 million in fiscal 2016 , a 3.1% decrease. Selling expenses as a percentage of net salesincreased from 19.0% in fiscal 2015 to 21.1% in fiscal 2016 . Increases in store payroll expense (1.20%, as a percentage of net sales), online marketing andfulfillment expenses (0.60%, as a percentage of net sales), health insurance expense (0.20%, as a percentage of net sales), and certain other selling expenses(0.40%, as a percentage of net sales) were partially offset by a reduction in expense related to the incentive bonus accrual (0.30%, as a percentage of net sales).
General and administrative expenses decreased from $39.3 million in fiscal 2015 to $38.5 million in fiscal 2016 , a 2.1% decrease. As a percentage of net sales,general and administrative expenses increased from 3.5% in fiscal 2015 to 3.9% in fiscal 2016 . The increase, as a percentage of net sales, was the result ofdeleverage across several general and administrative expense categories as a result of the comparable store sales decline. As a result of the above changes, the Company’s income from operations decreased from $229.6 million for fiscal 2015 to $152.8 million for fiscal 2016 . Incomefrom operations was 15.7% as a percentage of net sales in fiscal 2016 compared to 20.5% as a percentage of net sales in fiscal 2015 .
Other income was $3.5 million in fiscal 2016 compared to $5.2 million in fiscal 2015 . The Company’s other income is derived primarily from investment incomerelated to the Company’s cash and investments. Income tax expense as a percentage of pre-tax income was 37.3% in both fiscal 2016 and fiscal 2015 , bringing net income to $98.0 million in fiscal 2016 versus$147.3 million in fiscal 2015 .
Fiscal 2015 Compared to Fiscal 2014
Net sales for the 52-week fiscal year ended January 30, 2016, decreased 2.9% to $1.120 billion from net sales of $1.153 billion for the 52-week fiscal year endedJanuary 31, 2015. Comparable store net sales for the 52-week fiscal year decreased 4.4% from comparable store net sales for the prior year 52-week period endedJanuary 31, 2015. The comparable store sales decline was attributable to a 6.3% reduction in the number of transactions at comparable stores, partially offset by a0.4% increase in the average number of units sold per transaction and a 1.4% increase in the average retail price of merchandise sold during the year. Thecomparable store sales decline for the year was partially offset by the inclusion of a full year of operating results for the 16 new stores opened during fiscal 2014and to the opening of 9 new stores during fiscal 2015. Online sales for the fiscal year increased 11.8% to $105.5 million for the 52-week fiscal year endedJanuary 30, 2016 compared to $94.3 million for the 52-week fiscal year ended January 31, 2015. Average sales per square foot for fiscal 2015 decreased 6.5%from $459 to $430. Total square footage as of January 30, 2016 was 2.378 million compared to 2.343 million as of January 31, 2015.
The Company’s average retail price per piece of merchandise sold increased $0.72, or 1.4%, during fiscal 2015 compared to fiscal 2014. This $0.72 increase wasprimarily attributable to the following changes (with their corresponding effect on the overall average price per piece): a 3.2% increase in average knit shirt pricepoints ($0.34), a 7.3% increase in average accessory price points ($0.31), a 30.6% increase in average casual bottoms price points ($0.18), increased average pricepoints in certain other merchandise categories ($0.03), and a shift in the merchandise mix ($0.11); which were partially offset by a 1.1% reduction in averagedenim price points (-$0.25). These changes are primarily a reflection of merchandise shifts in terms of brands and product styles, fabrics, details, and finishes.
Gross profit after buying, distribution, and occupancy costs decreased $25.9 million from $507.3 million in fiscal 2014 to $481.4 million in fiscal 2015. As apercentage of net sales, gross profit was 43.0% in fiscal 2015 compared to 44.0% in fiscal 2014. The decrease was primarily attributable to deleveraged occupancy,buying, and distribution expenses as a result of the comparable store sales decline (0.90%, as a percentage of net sales) and a slight reduction in merchandisemargins (0.10%, as a percentage of net sales). Merchandise shrinkage was 0.6% of net sales for fiscal 2015 compared to 0.5% of net sales for fiscal 2014.
Selling expenses decreased from $212.7 million in fiscal 2014 to $212.5 million in fiscal 2015, a 0.1% decrease. Selling expenses as a percentage of net salesincreased from 18.4% in fiscal 2014 to 19.0% in fiscal 2015. Increases in store payroll expense (0.50%, as a percentage of net sales), online fulfillment andmarketing expenses (0.20%, as a percentage of net sales), and certain other selling expenses (0.10%, as a percentage of net sales) were partially offset by areduction in expense related to the incentive bonus accrual (0.20%, as a percentage of net sales).
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General and administrative expenses increased from $37.7 million in fiscal 2014 to $39.3 million in fiscal 2015, a 4.3% increase. As a percentage of net sales,general and administrative expenses increased from 3.3% in fiscal 2014 to 3.5% in fiscal 2015. The increase, as a percentage of net sales, was the result ofdeleverage across several general and administrative expense categories as a result of the comparable store sales decline. As a result of the above changes, the Company’s income from operations decreased from $257.0 million for fiscal 2014 to $229.6 million for fiscal 2015. Incomefrom operations was 20.5% as a percentage of net sales in fiscal 2015 compared to 22.3% as a percentage of net sales in fiscal 2014.
Other income was $5.2 million in fiscal 2015 compared to $2.7 million in fiscal 2014. The Company’s other income is derived primarily from investment incomerelated to the Company’s cash and investments. Income tax expense as a percentage of pre-tax income was 37.3% in fiscal 2015 compared to 37.4% in fiscal 2014, bringing net income to $147.3 million in fiscal2015 versus $162.6 million in fiscal 2014.
LIQUIDITY AND CAPITAL RESOURCES
As of January 28, 2017 , the Company had working capital of $287.8 million , including $196.5 million of cash and cash equivalents and $50.0 million of short-term investments. The Company’s cash receipts are generated from retail sales and from investment income, and the Company's primary ongoing cashrequirements are for inventory, payroll, occupancy costs, dividend payments, new store expansion, remodeling, and other capital expenditures. Historically, theCompany’s primary source of working capital has been cash flow from operations. During fiscal 2016 , 2015 , and 2014 the Company's cash flow from operationswas $148.9 million , $159.3 million , and $195.8 million , respectively.
During fiscal 2016 , 2015 , and 2014 , the Company invested $29.5 million, $22.6 million, and $31.2 million, respectively, in new store construction, storerenovation, and store technology upgrades. The Company spent $2.2 million, $12.0 million, and $14.3 million in fiscal 2016 , 2015 , and 2014 , respectively, incapital expenditures for the corporate headquarters and distribution facility. For both fiscal 2014 and fiscal 2015, capital spending for the corporate headquartersand distribution center includes expenditures related to the construction of a new office building as a part of the Company's home office campus in Kearney,Nebraska. The new building was substantially completed and placed into service during the first quarter of fiscal 2015.
During fiscal 2017 , the Company anticipates completing approximately 9 store construction projects, including approximately 2 new stores and approximately 7stores to be remodeled and/or relocated. The average cost of opening a new store during fiscal 2016 was approximately $1.0 million, including construction costsof approximately $0.8 million and inventory costs of approximately $0.2 million, net of payables. Management estimates that total capital expenditures duringfiscal 2017 will be approximately $25.0 to $30.0 million, which includes primarily new store and store remodeling projects and IT investments. The Companybelieves that existing cash and cash equivalents, investments, and cash flow from operations will be sufficient to fund current and long-term anticipated capitalexpenditures and working capital requirements for the next several years. The Company has had a consistent record of generating positive cash flow each year and,as of January 28, 2017 , had total cash and investments of $264.6 million , including $18.1 million of long-term investments. The Company does not currently haveplans for any merger or acquisition, and has fairly consistent plans for new store expansion and remodels. Based upon past results and current plans, managementdoes not anticipate any large swings in the Company’s need for cash in the upcoming years.
Future conditions, however, may reduce the availability of funds based upon factors such as a decrease in demand for the Company’s product, change in productmix, competitive factors, and general economic conditions as well as other risks and uncertainties which would reduce the Company’s sales, net profitability, andcash flows. Also, the Company’s acceleration in store openings and/or remodels, or entering into a merger, acquisition, or other financial related transaction couldreduce the amount of cash available for further capital expenditures and working capital requirements.
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The Company has available an unsecured line of credit of $25.0 million with Wells Fargo Bank, N.A. for operating needs and letters of credit. The line of creditagreement has an expiration date of July 31, 2017 and provides that $10.0 million of the $25.0 million line is available for letters of credit. Borrowings under theline of credit provide for interest to be paid at a rate based on LIBOR. The Company has, from time to time, borrowed against these lines of credit. There were noborrowings during fiscal 2016 , 2015 , and 2014 . The Company had no bank borrowings as of January 28, 2017 and was in compliance with the terms andconditions of the line of credit agreement.
Dividend payments - During fiscal 2016 , the Company paid total cash dividends of $84.9 million as follows: $0.25 per share in each of the four quarters and aspecial cash dividend of $0.75 per share in the fourth quarter. During fiscal 2015 , the Company paid total cash dividends of $93.8 million as follows: $0.23 pershare in each of the first three quarters, $0.25 per share in the fourth quarter, and a special cash dividend of $1.00 per share in the fourth quarter. During fiscal 2014, the Company paid total cash dividends of $176.6 million as follows: $0.22 per share in each of the first three quarters, $0.23 per share in the fourth quarter, and aspecial cash dividend of $2.77 per share in the fourth quarter. The Company plans to continue its quarterly dividends in fiscal 2017 .
Stock repurchase plan - The Company did not repurchase any shares of its common stock during fiscal 2016 or fiscal 2014. During fiscal 2015, the Companyrepurchased 103,693 shares of its common stock at a total cost of $3.2 million, or an average of $31.01 per share. As of January 28, 2017 , 440,207 sharesremained available under the Company's current 1,000,000 share repurchase plan that was approved by the Board of Directors on November 20, 2008.
Auction-Rate Securities - As of January 28, 2017 , total cash and investments included $1.7 million of auction-rate securities (“ARS”), which compares to $7.5million of ARS as of January 30, 2016 . All of the $1.7 million in ARS was classified in long-term investments as of January 28, 2017 . ARS have a long-termstated maturity, but are reset through a “dutch auction” process that occurs every 7 to 49 days, depending on the terms of the individual security. During February2008, a significant number of auctions related to these securities failed, meaning that there was not enough demand to sell the entire issue at auction. The failedauctions have limited the current liquidity of the Company’s investments in ARS. The Company does not anticipate, however, that further auction failures willhave a material impact on the Company’s ability to fund its business.
ARS are reported at fair market value, and as of January 28, 2017 , the reported investment amount is net of a $130,000 temporary impairment to account for theimpairment of certain securities from their stated par value. The Company reported the $130,000 temporary impairment, net of tax, as an “accumulated othercomprehensive loss” of $82,000 in stockholders’ equity as of January 28, 2017 . The Company has accounted for the impairment as temporary, as it currentlybelieves that these ARS can be successfully redeemed or liquidated in the future at par value plus accrued interest. During fiscal 2016 , the Company was able tosuccessfully liquidate ARS with a par value of $6.2 million .
The Company reviews all investments for other-than-temporary impairment (“OTTI”) at least quarterly or as indicators of impairment exist. The value andliquidity of ARS held by the Company may be affected by continued auction-rate failures, the credit quality of each security, the amount and timing of interestpayments, the amount and timing of future principal payments, and the probability of full repayment of the principal. Additional indicators of impairment includethe duration and severity of the decline in market value. The interest rates on these investments will be determined by the terms of each individual ARS. The risksassociated with the ARS held by the Company include those stated above as well as the current economic environment, downgrading of credit ratings oninvestments held, and the volatility of the entities backing each of the issues. In addition, the Company considers qualitative factors including, but not limited to,the financial condition of the investee, the credit rating of the investee, and the current and expected market and industry conditions in which the investee operates.The Company believes it has the ability and intent to hold these investments until recovery of market value occurs or until the ultimate maturity of the investments.
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CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Management’s Discussion and Analysis of Financial Condition and Results of Operations are based upon The Buckle, Inc.’s consolidated financial statements,which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these consolidatedfinancial statements requires that management make estimates and judgments that affect the reported amounts of assets and liabilities, the disclosure of contingentassets and liabilities at the financial statement date, and the reported amounts of sales and expenses during the reporting period. The Company regularly evaluatesits estimates, including those related to inventory, investments, incentive bonuses, and income taxes. Management bases its estimates on past experience and onvarious other factors that are thought to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying valuesof assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.Management believes that the estimates and judgments used in preparing these consolidated financial statements were the most appropriate at that time. Presentedbelow are those critical accounting policies that management believes require subjective and/or complex judgments that could potentially affect reported results ofoperations.
1. Revenue Recognition.Retail store sales are recorded upon the purchase of merchandise by customers. Online sales are recorded when merchandise isdelivered to the customer, with the time of delivery being based on estimated shipping time from the Company’s distribution center to the customer. Shippingfees charged to customers are included in revenue and shipping costs are included in selling expenses. The Company recognizes revenue from sales madeunder its layaway program upon delivery of the merchandise to the customer. Revenue is not recorded when gift cards and gift certificates are sold, but ratherwhen a card or certificate is redeemed for merchandise. A current liability for unredeemed gift cards and certificates is recorded at the time the card orcertificate is purchased. The liability recorded for unredeemed gift certificates and gift cards was $21.2 million and $22.9 million as of January 28, 2017 andJanuary 30, 2016 , respectively. The amounts of the gift certificate and gift card liabilities are determined using the outstanding balances from the prior threeand four years of issuance, respectively. The Company records breakage as other income when the probability of redemption is remote, based on historicalissuance and redemption patterns. Breakage recorded for the fiscal years ended January 28, 2017 , January 30, 2016 , and January 31, 2015 was $2.1 million ,$1.9 million , and $0.9 million , respectively.
The Company establishes a liability for estimated merchandise returns based upon the historical average sales return percentage. Customer returns couldpotentially exceed the historical average, thus reducing future net sales results and potentially reducing future net earnings. The accrued liability for reserve forsales returns was $0.7 million as of January 28, 2017 and $0.8 million as of January 30, 2016 . Sales tax collected from customers is excluded from revenueand is included as part of “accrued store operating expenses” on the Company's consolidated balance sheets.
In fiscal 2016, the Company launched a new Guest Loyalty program that allows participating guests to earn points for every qualifying purchase, which (afterachievement of certain point thresholds) are redeemable as a discount off a future purchase. Reported revenue for fiscal 2016 is net of both rewardredemptions and accruals for estimated future rewards earned under the Guest Loyalty program. A liability has been recorded for future rewards based on theCompany's estimate of how many earned points will turn into rewards and ultimately be redeemed prior to expiration. As of January 28, 2017 , $8.9 millionwas included in "accrued store operating expenses" as a liability for estimated future rewards.
2. Inventory. Inventory is valued at the lower of cost or market. Cost is determined using an average cost method that approximates the first-in, first-out (FIFO)method. Management makes adjustments to inventory and cost of goods sold, based upon estimates, to account for merchandise obsolescence and markdownsthat could affect market value, based on assumptions using calculations applied to current inventory levels within each different markdown level. Managementalso reviews the levels of inventory in each markdown group and the overall aging of the inventory versus the estimated future demand for such product andthe current market conditions. Such judgments could vary significantly from actual results, either favorably or unfavorably, due to fluctuations in futureeconomic conditions, industry trends, consumer demand, and the competitive retail environment. Such changes in market conditions could negatively impactthe sale of markdown inventory, causing further markdowns or inventory obsolescence, resulting in increased cost of goods sold from write-offs and reducingthe Company’s net earnings. The adjustment to inventory for markdowns and/or obsolescence was $11.4 million as of January 28, 2017 and $9.3 million as ofJanuary 30, 2016 , respectively. The Company is not aware of any events, conditions, or changes in demand or price that would indicate that its inventoryvaluation may not be materially accurate at this time.
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3. IncomeTaxes. The Company records a deferred tax asset and liability for expected future tax consequences resulting from temporary differences betweenfinancial reporting and tax bases of assets and liabilities. The Company considers future taxable income and ongoing tax planning in assessing the value of itsdeferred tax assets. If the Company determines that it is more than likely that these assets will not be realized, the Company would reduce the value of theseassets to their expected realizable value, thereby decreasing net income. Estimating the value of these assets is based upon the Company’s judgment. If theCompany subsequently determined that the deferred tax assets, which had been written down, would be realized in the future, such value would be increased.Adjustment would be made to increase net income in the period such determination was made. As of January 30, 2016 , the Company’s deferred tax assetrelated to capital loss carryforwards is net of a $0.5 million valuation allowance recorded to reduce the value of the Company’s capital loss carryforward to itsexpected realizable amount prior to expiration. There was no valuation allowance related to the Company's deferred tax asset for capital loss carryforwards asof January 28, 2017.
4. OperatingLeases . The Company leases retail stores under operating leases. Most lease agreements contain tenant improvement allowances, rent holidays,rent escalation clauses, and/or contingent rent provisions. For purposes of recognizing lease incentives and minimum rental expense on a straight-line basisover the terms of the leases, the Company uses the date of initial possession to begin amortization, which is generally when the Company enters the space andbegins to make improvements in preparation of intended use. For tenant improvement allowances and rent holidays, the Company records a deferred rentliability on the consolidated balance sheets and amortizes the deferred rent over the terms of the leases as reductions to rent expense on the consolidatedstatements of income.
For scheduled rent escalation clauses during the lease terms or for rental payments commencing at a date other than the date of initial occupancy, theCompany records minimum rental expense on a straight-line basis over the terms of the leases on the consolidated statements of income. Certain leasesprovide for contingent rents, which are determined as a percentage of gross sales in excess of specified levels. The Company records a contingent rent liabilityon the consolidated balance sheets and the corresponding rent expense when specified levels have been achieved or are reasonably probable to be achieved.
5. Investments. As more fully described in Liquidity and Capital Resources on pages 23 to 24 and in Note B to the consolidated financial statements on pages 39to 40, in prior years the Company invested a portion of its investments in auction-rate securities (“ARS”). These investments are classified as available-for-sale securities and are reported at fair market values of $1.7 million and $7.5 million as of January 28, 2017 and January 30, 2016 , respectively
The Company reviews impairment to determine the classification of potential impairments as either temporary or other-than-temporary. A temporaryimpairment results in an unrealized loss being recorded in other comprehensive income. An impairment that is considered other-than-temporary would berecognized in net income. The Company considers various factors in reviewing impairment, including the duration and severity of the decline in market value.In addition, the Company considers qualitative factors including, but not limited to, the financial condition of the investee, the credit rating of the investee, thecurrent and expected market and industry conditions in which the investee operates, and the Company’s intent and ability to hold the investments for a periodof time sufficient to allow for any anticipated recovery in market value. The Company believes it has the ability and maintains its intent to hold theseinvestments until recovery of market value occurs or until the ultimate maturity of the investments.
The Company determined the fair value of ARS using Level 1 inputs for known or anticipated subsequent redemptions at par value, Level 2 inputs usingobservable inputs, and Level 3 using unobservable inputs, where the following criteria were considered in estimating fair value:
• Pricing was provided by the custodian or third party broker for ARS;• Sales of similar securities;• Quoted prices for similar securities in active markets;• Quoted prices for similar assets in markets that are not active - including markets where there are few transactions for the asset, the prices are not
current, or price quotations vary substantially either over time or among market makers, or in which little information is released publicly;• Pricing was provided by a third-party valuation consultant (using Level 3 inputs).
In addition, the Company considers other factors including, but not limited to, the financial condition of the investee, the credit rating, insurance, guarantees,collateral, cash flows, and the current and expected market and industry conditions in which the investee operates. Management believes it has usedinformation that was reasonably obtainable in order to complete its valuation process and determine if the Company’s investments in ARS had incurred anytemporary and/or other-than-temporary impairment as of January 28, 2017 .
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The Company has concluded that certain of its ARS represent Level 3 valuation. A discounted cash flow analysis was used to value these investments. Theassumptions used in preparing the discounted cash flow model include estimates for interest rates, timing and amount of cash flows, and expected holdingperiods of the ARS. As of January 28, 2017 , the unobservable inputs used by the Company and its independent third-party valuation consultant in valuing itsLevel 3 investments in ARS included:
• Duration until redemption of 6.7 years.• Discount rate of 3.66% .
OFF-BALANCE SHEET ARRANGEMENTS, CONTRACTUAL OBLIGATIONS, AND COMMERCIAL COMMITMENTS
As referenced in the table below, the Company has contractual obligations and commercial commitments that may affect the financial condition of the Company.Based on management’s review of the terms and conditions of its contractual obligations and commercial commitments, there is no known trend, demand,commitment, event, or uncertainty that is reasonably likely to occur which would have a material effect on the Company’s financial condition, results ofoperations, or cash flows.
In addition, the commercial obligations and commitments made by the Company are customary transactions which are similar to those of other comparable retailcompanies. The operating lease obligations shown in the table below represent future cash payments to landlords required to fulfill the Company’s minimum rentrequirements. Such amounts are actual cash requirements by year and are not reported net of any tenant improvement allowances received from landlords.
The following table identifies the material obligations and commitments as of January 28, 2017 :
Payments Due by PeriodContractual obligations (dollar amounts inthousands): Total
Less than 1year 1-3 years 4-5 years
After 5years
Purchase obligations $ 16,802 $ 6,127 $ 5,383 $ 3,600 $ 1,692Deferred compensation 13,092 — — — 13,092Operating leases 355,302 68,487 115,960 80,133 90,722Total contractual obligations $ 385,196 $ 74,614 $ 121,343 $ 83,733 $ 105,506 The Company has available an unsecured line of credit of $25.0 million, which is excluded from the preceding table. The line of credit agreement has an expirationdate of July 31, 2017 and provides that $10.0 million of the $25.0 million line of credit is available for letters of credit. Certain merchandise purchase ordersrequire that the Company open letters of credit. When the Company takes possession of the merchandise, it releases payment on the letters of credit. The amountsof outstanding letters of credit reported reflect the open letters of credit on merchandise ordered, but not yet received or funded. The Company believes it hassufficient credit available to open letters of credit for merchandise purchases. There were no bank borrowings during fiscal 2016 , 2015 and 2014 . The Companyhad outstanding letters of credit totaling $1.8 million as of January 28, 2017 and $2.1 million as of January 30, 2016 . The Company has no other off-balance sheetarrangements.
SEASONALITY AND INFLATION
The Company's business is seasonal, with the holiday season (from approximately November 15 to December 30) and the back-to-school season (fromapproximately July 15 to September 1) historically contributing the greatest volume of net sales. For fiscal years 2016 , 2015 , and 2014 , the holiday and back-to-school seasons accounted for approximately 35% of the Company's fiscal year net sales. Although the operations of the Company are influenced by generaleconomic conditions, the Company does not believe that inflation has had a material effect on the results of operations during the past three fiscal years. Quarterlyresults may vary significantly depending on a variety of factors including the timing and amount of sales and costs associated with the opening of new stores, thetiming and level of markdowns, the timing of store closings, the remodeling of existing stores, competitive factors, and general economic conditions.
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RELATED PARTY TRANSACTIONS
Included in other assets is a note receivable of $1.2 million as of both January 28, 2017 and January 30, 2016 , from a life insurance trust fund controlled by theCompany’s Chairman. The note was created over three years, beginning in July 1994, when the Company paid life insurance premiums of $0.2 million each yearfor the Chairman on a personal policy. The note accrues interest at 5% of the principal balance per year and is to be paid from the life insurance proceeds. The noteis secured by a life insurance policy on the Chairman.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2014-09, Revenue from Contracts withCustomers(Topic606), which supersedes the revenue recognition requirements in Accounting Standards Codification ("ASC") 605, RevenueRecognition. Thenew revenue recognition standard requires entities to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an amountthat reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In July 2015, the FASB approved a one-yeardeferral of the effective date of the new revenue recognition standard. The new standard will become effective for the Company beginning with the first quarter offiscal 2018 and can be adopted either retrospectively to each prior reporting period presented or as a cumulative effect adjustment as of the date of adoption. TheCompany does not intend to early adopt the new standard and is currently evaluating the effect that adopting this new accounting guidance will have, but does notexpect it will have a material effect on its consolidated results of operations and financial position.
In July 2015, the FASB issued ASU 2015-11, SimplifyingtheMeasurementofInventory. Under this ASU, inventory will be measured at the “lower of cost and netrealizable value” and options that currently exist for “market value” will be eliminated. The ASU defines net realizable value as the “estimated selling prices in theordinary course of business, less reasonably predictable costs of completion, disposal, and transportation.” No other changes were made to the current guidance oninventory measurement. ASU 2015-11 is effective for interim and annual periods beginning after December 15, 2016. The Company does not expect that theadoption of this ASU, in the first quarter of fiscal 2017, will have a material effect on its consolidated results of operations and financial position.
In February 2016, the FASB issued ASU No. 2016-02, Leases(Topic842). This ASU replaces the existing guidance in ASC 840, Leases. The new standardestablishes a right-of-use ("ROU") model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. Theguidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years and requires retrospective application.The Company is currently evaluating the effect that adopting this new accounting guidance will have on its consolidated results of operations and financialposition, but does expect that it will result in a significant increase in both assets and liabilities.
In March 2016, the FASB issued ASU No. 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based PaymentAccounting . This standard is intended to simplify several aspects of the accounting for share-based payment award transactions, including the income taxconsequences, classification of awards as either equity or liabilities, an option to recognize gross stock compensation expense with actual forfeitures recognized asthey occur, and classifications in the statement of cash flows. ASU 2016-09 is effective for interim and annual periods beginning after December 15, 2016 andearly adoption is permitted. The Company does not expect that the adoption of this ASU, in the first quarter of fiscal 2017, will have a material effect on itsconsolidated results of operations and financial position.
FORWARD LOOKING STATEMENTS
Information in this report, other than historical information, may be considered to be forward-looking statements within the meaning of the Private SecuritiesLitigation Reform Act of 1995 (the “1995 Act”). Such statements are made in good faith by the Company pursuant to the safe-harbor provisions of the 1995 Act.In connection with these safe-harbor provisions, this management’s discussion and analysis contains certain forward-looking statements, which reflectmanagement’s current views and estimates of future economic conditions, Company performance, and financial results. The statements are based on manyassumptions and factors that could cause future results to differ materially. Such factors include, but are not limited to, changes in product mix, changes in fashiontrends, competitive factors, and general economic conditions, economic conditions in the retail apparel industry, as well as other risks and uncertainties inherent inthe Company’s business and the retail industry in general. Any changes in these factors could result in significantly different results for the Company. TheCompany further cautions that the forward-looking information contained herein is not exhaustive or exclusive. The Company does not undertake to update anyforward-looking statements, which may be made from time to time by or on behalf of the Company.
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ITEM 7A – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
InterestRateRisk- To the extent that the Company borrows under its line of credit facility, the Company would be exposed to market risk related to changes ininterest rates. As of January 28, 2017 , no borrowings were outstanding under the line of credit facility. The Company is not a party to any derivative financialinstruments. Additionally, the Company is exposed to market risk related to interest rate risk on the cash and investments in interest-bearing securities. Theseinvestments have carrying values that are subject to interest rate changes that could impact earnings to the extent that the Company did not hold the investments tomaturity. If there are changes in interest rates, those changes would also affect the investment income the Company earns on its cash and investments. For eachone-quarter percent decline in the interest/dividend rate earned on cash and investments (approximately a 50% change in the rate earned), the Company’s netincome would decrease approximately $0.5 million, or less than $0.01 per share. This amount could vary based upon the number of shares of the Company’s stockoutstanding and the level of cash and investments held by the Company.
Other Market Risk– At January 28, 2017 , the Company held $1.8 million , at par value, of investments in auction-rate securities (“ARS”). The Companyconcluded that a $130,000 temporary impairment existed related to these securities as of January 28, 2017 . Given current market conditions in the ARS market,the Company may incur additional temporary or other-than-temporary impairment in the future if market conditions persist and the Company is unable to recoverthe cost of its investments in ARS.
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ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders ofThe Buckle, Inc.Kearney, Nebraska
We have audited the accompanying consolidated balance sheets of The Buckle, Inc. and subsidiary (the “Company”) as of January 28, 2017 and January 30, 2016,and the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for each of the three fiscal years in the periodended January 28, 2017. Our audits also included the financial statement schedule listed in the Index at Item 15. These financial statements and financial statementschedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statements and financial statementschedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that weplan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining,on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used andsignificant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basisfor our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of The Buckle, Inc. and subsidiary as of January28, 2017 and January 30, 2016, and the results of their operations and their cash flows for each of the three fiscal years in the period ended January 28, 2017, inconformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, whenconsidered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control overfinancial reporting as of January 28, 2017, based on the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee ofSponsoring Organizations of the Treadway Commission and our report dated March 29, 2017, expressed an unqualified opinion on the Company’s internal controlover financial reporting.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLPOmaha, NebraskaMarch 29, 2017
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THE BUCKLE, INC.
CONSOLIDATED BALANCE SHEETS(Amounts in Thousands Except Share and Per Share Amounts)
ASSETSJanuary 28,
2017 January 30,
2016 CURRENT ASSETS:
Cash and cash equivalents $ 196,536 $ 161,185
Short-term investments (Notes B and C) 49,994 36,465
Receivables 8,210 9,651
Inventory 125,694 149,566
Prepaid expenses and other assets (Note F) 6,023 6,030
Total current assets 386,457 362,897
PROPERTY AND EQUIPMENT (Note D) 459,359 450,762
Less accumulated depreciation and amortization (290,364) (277,981)
168,995 172,781
LONG-TERM INVESTMENTS (Notes B and C) 18,092 33,826
OTHER ASSETS (Notes F and G) 6,303 3,269
Total assets $ 579,847 $ 572,773
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable $ 25,079 $ 33,862
Accrued employee compensation 26,906 33,126
Accrued store operating expenses 14,695 6,639
Gift certificates redeemable 21,199 22,858
Income taxes payable 10,737 11,141
Total current liabilities 98,616 107,626
DEFERRED COMPENSATION (Note I) 13,092 12,849
DEFERRED RENT LIABILITY 37,600 39,655
Total liabilities 149,308 160,130
COMMITMENTS (Notes E and H) STOCKHOLDERS’ EQUITY (Note J):
Common stock, authorized 100,000,000 shares of $.01 par value; 48,622,780 and 48,428,110 shares issued and outstandingat January 28, 2017 and January 30, 2016, respectively 486 484
Additional paid-in capital 139,398 134,864
Retained earnings 290,737 277,626
Accumulated other comprehensive loss (82) (331)
Total stockholders’ equity 430,539 412,643
Total liabilities and stockholders' equity $ 579,847 $ 572,773
See notes to consolidated financial statements.
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THE BUCKLE, INC.
CONSOLIDATED STATEMENTS OF INCOME(Amounts in Thousands Except Per Share Amounts)
Fiscal Years Ended
January 28,
2017January 30,
2016 January 31,
2015 SALES, Net of returns and allowances of $101,375, $113,325, and $110,793, respectively $ 974,873 $ 1,119,616 $ 1,153,142
COST OF SALES (Including buying, distribution, and occupancy costs) 577,705 638,215 645,810
Gross profit 397,168 481,401 507,332
OPERATING EXPENSES:
Selling 205,933 212,531 212,688General and administrative 38,475 39,282 37,671
244,408 251,813 250,359
INCOME FROM OPERATIONS 152,760 229,588 256,973
OTHER INCOME, Net 3,511 5,236 2,723
INCOME BEFORE INCOME TAXES 156,271 234,824 259,696
PROVISION FOR INCOME TAXES (Note F) 58,310 87,541 97,132
NET INCOME $ 97,961 $ 147,283 $ 162,564
EARNINGS PER SHARE (Note K): Basic $ 2.04 $ 3.06 $ 3.39
Diluted $ 2.03 $ 3.06 $ 3.38
See notes to consolidated financial statements.
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THE BUCKLE, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME(Amounts in Thousands)
Fiscal Years Ended
January 28,
2017 January 30,
2016 January 31,
2015
NET INCOME $ 97,961 $ 147,283 $ 162,564
OTHER COMPREHENSIVE INCOME, NET OF TAX: Change in unrealized loss on investments, net of tax of $129, $59, and $240, respectively 221 98 409Reclassification adjustment for losses included in net income, net of tax of $17, $0, and $0,
respectively 28 — —
Other comprehensive income 249 98 409
COMPREHENSIVE INCOME $ 98,210 $ 147,381 $ 162,973
See notes to consolidated financial statements.
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THE BUCKLE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY(Amounts in Thousands Except Share and Per Share Amounts)
Numberof Shares
CommonStock
AdditionalPaid-inCapital
RetainedEarnings
AccumulatedOther
ComprehensiveLoss Total
BALANCE, February 1, 2014 48,336,392 $ 483 $ 124,134 $ 238,151 $ (838) $ 361,930
Net income — — — 162,564 — 162,564
Dividends paid on common stock, ($3.66 per share) — — — (176,604) — (176,604)
Common stock issued on exercise of stock options 17,091 — 70 — — 70
Issuance of non-vested stock, net of forfeitures 26,130 1 (1) — — —
Amortization of non-vested stock grants, net of forfeitures — — 6,013 — — 6,013Income tax benefit related to exercise of stock options and
vesting of restricted shares — — 896 — — 896
Change in unrealized loss on investments, net of tax — — — — 409 409
BALANCE, January 31, 2015 48,379,613 $ 484 $ 131,112 $ 224,111 $ (429) $ 355,278
Net income — — — 147,283 — 147,283
Dividends paid on common stock, ($1.94 per share) — — — (93,768) — (93,768)
Issuance of non-vested stock, net of forfeitures 152,190 1 (1) — — —
Amortization of non-vested stock grants, net of forfeitures — — 6,197 — — 6,197
Income tax benefit related to vesting of restricted shares — — 774 — — 774
Common stock purchased and retired (103,693) (1) (3,218) — — (3,219)
Change in unrealized loss on investments, net of tax — — — — 98 98
BALANCE, January 30, 2016 48,428,110 $ 484 $ 134,864 $ 277,626 $ (331) $ 412,643
Net income — — — 97,961 — 97,961
Dividends paid on common stock, ($1.75 per share) — — — (84,850) — (84,850)
Issuance of non-vested stock, net of forfeitures 194,670 2 (2) — — —
Amortization of non-vested stock grants, net of forfeitures — — 5,330 — — 5,330
Income tax benefit related to vesting of restricted shares — — (794) — — (794)
Change in unrealized loss on investments, net of tax — — — — 221 221Reclassification adjustment for losses included in net
income, net of tax — — — — 28 28
BALANCE, January 28, 2017 48,622,780 $ 486 $ 139,398 $ 290,737 $ (82) $ 430,539
See notes to consolidated financial statements.
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THE BUCKLE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS(Amounts in Thousands)
Fiscal Years Ended
January 28,
2017 January 30,
2016 January 31,
2015CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 97,961 $ 147,283 $ 162,564Adjustments to reconcile net income to net cash flows from operating activities: Depreciation and amortization 32,787 32,142 31,679Amortization of non-vested stock grants, net of forfeitures 5,330 6,197 6,013Deferred income taxes (3,260) (1,217) (1,675)Other 1,875 448 1,163Changes in operating assets and liabilities:
Receivables 3,853 (389) (2,134)Inventory 23,872 (19,645) (5,780)Prepaid expenses and other assets 7 9,722 3,508Accounts payable (8,314) (182) (2,915)Accrued employee compensation (6,220) (3,794) (13)Accrued store operating expenses 8,056 (3,345) 1Gift certificates redeemable (1,659) (1,134) 861Income taxes payable (3,610) (4,441) (1,970)Deferred rent liabilities and deferred compensation (1,812) (2,323) 4,466
Net cash flows from operating activities 148,866 159,322 195,768
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (31,663) (34,578) (45,454)Proceeds from sale of property and equipment 318 199 —Change in other assets 80 100 108Purchases of investments (41,621) (29,714) (43,404)Proceeds from sales/maturities of investments 44,221 29,135 38,131
Net cash flows from investing activities (28,665) (34,858) (50,619)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the exercise of stock options — — 70Excess tax benefit from stock option exercises — — 225Purchases of common stock — (3,219) —Payment of dividends (84,850) (93,768) (176,604)
Net cash flows from financing activities (84,850) (96,987) (176,309)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 35,351 27,477 (31,160) CASH AND CASH EQUIVALENTS, Beginning of year 161,185 133,708 164,868 CASH AND CASH EQUIVALENTS, End of year $ 196,536 $ 161,185 $ 133,708
See notes to consolidated financial statements.
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THE BUCKLE, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar Amounts in Thousands Except Share and Per Share Amounts)
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
FiscalYear- The Buckle, Inc. (the “Company”) has its fiscal year end on the Saturday nearest January 31. All references in these consolidated financial statementsto fiscal years are to the calendar year in which the fiscal year begins. Fiscal 2016 represents the 52-week period ended January 28, 2017 , fiscal 2015 representsthe 52-week period ended January 30, 2016 , and fiscal 2014 represents the 52-week period ended January 31, 2015 .
Nature of Operations - The Company is a retailer of medium to better-priced casual apparel, footwear, and accessories for fashion-conscious young men andwomen operating 467 stores located in 44 states throughout the United States as of January 28, 2017 .
During fiscal 2016 , the Company opened 5 new stores, substantially remodeled 19 stores, and closed 6 stores. During fiscal 2015 , the Company opened 9 newstores, substantially remodeled 14 stores, and closed 1 store. During fiscal 2014 , the Company opened 16 new stores, substantially remodeled 18 stores, and closed6 stores.
PrinciplesofConsolidation-The consolidated financial statements include the accounts of The Buckle, Inc. and its wholly-owned subsidiary. All intercompanyaccounts and transactions have been eliminated in consolidation.
RevenueRecognition- Retail store sales are recorded upon the purchase of merchandise by customers. Online sales are recorded when merchandise is delivered tothe customer, with the time of delivery being based on estimated shipping time from the Company’s distribution center to the customer. Shipping fees charged tocustomers are included in revenue and shipping costs are included in selling expenses. Shipping costs were $6,880 , $7,420 , and $6,549 during fiscal 2016 , 2015 ,and 2014 , respectively. Merchandise returns are estimated based upon the historical average sales return percentage and accrued at the end of the period. Thereserve for merchandise returns was $669 and $834 as of January 28, 2017 and January 30, 2016 , respectively. The Company recognizes revenue from sales madeunder its layaway program upon delivery of the merchandise to the customer.
The Company records the sale of gift cards and gift certificates as a current liability and recognizes a sale when a customer redeems the gift card or gift certificate.The amount of the gift certificate liability is determined using the outstanding balances from the prior three years of issuance and the gift card liability isdetermined using the outstanding balances from the prior four years of issuance. The Company records breakage as other income when the probability ofredemption is remote, based on historical issuance and redemption patterns. Breakage recorded for the fiscal years ended January 28, 2017 , January 30, 2016 , andJanuary 31, 2015 was $2,067 , $1,934 , and $860 , respectively. The Company recognizes a current liability for the down payment and subsequent installmentpayments made when merchandise is placed on layaway and recognizes layaways as a sale at the time the customer makes final payment and picks up themerchandise.
In fiscal 2016, the Company launched a new Guest Loyalty program that allows participating guests to earn points for every qualifying purchase, which (afterachievement of certain point thresholds) are redeemable as a discount off a future purchase. Reported revenue for fiscal 2016 is net of both reward redemptions andaccruals for estimated future rewards earned under the Guest Loyalty program. A liability has been recorded for future rewards based on the Company's estimate ofhow many earned points will turn into rewards and ultimately be redeemed prior to expiration. As of January 28, 2017 , $8,910 was included in "accrued storeoperating expenses" as a liability for estimated future rewards.
Cash and Cash Equivalents - The Company considers all debt instruments with an original maturity of three months or less when purchased to be cashequivalents.
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Investments- Investments classified as short-term investments include securities with a maturity of greater than three months and less than one year. Available-for-sale securities are reported at fair value, with unrealized gains and losses excluded from earnings and reported as a separate component of stockholders’ equity(net of the effect of income taxes), using the specific identification method, until they are sold. The Company reviews impairment to determine the classification ofpotential impairments as either temporary or other-than-temporary. A temporary impairment results in an unrealized loss being recorded in other comprehensiveincome. An impairment that is considered other-than-temporary would be recognized in net income. The Company considers various factors in reviewing potentialimpairments, including the length of time and extent to which the fair value has been less than the Company’s cost basis, the financial condition and near-termprospects of the issuer, and the Company’s intent and ability to hold the investments for a period of time sufficient to allow for any anticipated recovery in marketvalue. The Company believes it has the ability and maintains its intent to hold these investments until recovery of market value occurs or until the ultimate maturityof the investments. Held-to-maturity securities are carried at amortized cost. Trading securities are reported at fair value, with unrealized gains and losses includedin earnings, using the specific identification method.
Inventory- Inventory is stated at the lower of cost or market. Cost is determined using an average cost method that approximates the first-in, first-out ("FIFO")method. Management makes adjustments to inventory and cost of goods sold to account for merchandise obsolescence and markdowns based on assumptions usingcalculations applied to current inventory levels by department within each different markdown level. Management also reviews the levels of inventory in eachmarkdown group, and the overall aging of inventory, versus the estimated future demand for such product and the current market conditions. The calculation forestimated markdowns and/or obsolescence reduced the Company’s inventory valuation by $11,376 and $9,326 as of January 28, 2017 and January 30, 2016 ,respectively. The amount charged to cost of goods sold, resulting from adjustments for estimated markdowns and/or obsolescence, was $2,050 , $1,356 , and $555 ,for fiscal years 2016 , 2015 , and 2014 , respectively.
Property andEquipment - Property and equipment are stated on the basis of historical cost. Depreciation is provided using a combination of accelerated andstraight-line methods based upon the estimated useful lives of the assets. The majority of property and equipment have useful lives of five to ten years with theexception of buildings, which have estimated useful lives of 31.5 to 39 years. Leasehold improvements are stated on the basis of historical cost and are amortizedover the shorter of the life of the lease or the estimated economic life of the assets. When circumstances indicate the carrying values of long-lived assets may beimpaired, an evaluation is performed on current net book value amounts. Judgments made by the Company related to the expected useful lives of property andequipment and the ability to realize cash flows in excess of carrying amounts of such assets are affected by factors such as changes in economic conditions andchanges in operating performance. As the Company assesses the expected cash flows and carrying amounts of long-lived assets, adjustments are made to suchcarrying values.
Pre-OpeningExpenses- Costs related to opening new stores are expensed as incurred.
AdvertisingCosts- Advertising costs are expensed as incurred and were $16,188 , $13,262 and $12,041 for fiscal years 2016 , 2015 , and 2014 , respectively.
Health Care Costs - The Company is self-funded for health and dental claims up to $200 per individual per plan year. The Company’s plan covers eligibleemployees, and management makes estimates at period end to record a reserve for unpaid claims based upon historical claims information. The accrued liability asa reserve for unpaid health care claims was $1,295 and $765 as of January 28, 2017 and January 30, 2016 , respectively.
OperatingLeases- The Company leases retail stores under operating leases. Most lease agreements contain tenant improvement allowances, rent holidays, rentescalation clauses, and/or contingent rent provisions. For purposes of recognizing lease incentives and minimum rental expenses on a straight-line basis over theterms of the leases, the Company uses the date of initial possession to begin expensing rent, which is generally when the Company enters the space and begins tomake improvements in preparation of intended use.
For tenant improvement allowances and rent holidays, the Company records a deferred rent liability on the consolidated balance sheets and amortizes the deferredrent over the terms of the leases as reductions to rent expense on the consolidated statements of income.
For scheduled rent escalation clauses during the lease terms or for rental payments commencing at a date other than the date of initial occupancy, the Companyrecords minimum rental expenses on a straight-line basis over the terms of the leases on the consolidated statements of income. Certain leases provide forcontingent rents, which are determined as a percentage of gross sales in excess of specified levels. The Company records a contingent rent liability in “accruedstore operating expenses” on the consolidated balance sheets and the corresponding rent expense when specified levels have been achieved or are reasonablyprobable to be achieved.
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OtherIncome- The Company’s other income is derived primarily from interest and dividends received on cash and investments.
Income Taxes -The Company records a deferred tax asset and liability for expected future tax consequences resulting from temporary differences betweenfinancial reporting and tax bases of assets and liabilities. The Company considers future taxable income and ongoing tax planning in assessing the value of itsdeferred tax assets. If the Company determines that it is more than likely that these assets will not be realized, the Company would reduce the value of these assetsto their expected realizable value, thereby decreasing net income. If the Company subsequently determined that the deferred tax assets, which had been writtendown, would be realized in the future, such value would be increased, thus increasing net income in the period such determination was made. The Companyrecords tax benefits only for tax positions that are more than likely to be sustained upon examination by tax authorities. The amount recognized is measured as thelargest amount of benefit that is greater than 50% likely to be realized upon ultimate settlement. Unrecognized tax benefits are tax benefits claimed in theCompany’s tax returns that do not meet these recognition and measurement standards.
Financial Instruments and Credit Risk Concentrations - Financial instruments, which potentially subject the Company to concentrations of credit risk, areprimarily cash, investments, and accounts receivable. The Company’s investments are primarily in tax-free municipal bonds, auction-rate securities, corporatebonds, or U.S. Treasury securities with short-term maturities. The majority of the Company’s cash and cash equivalents are held by Wells Fargo Bank, N.A. Thisamount, as well as cash and investments held by certain other financial institutions, exceeds federally insured limits.
Of the Company’s $264,622 in total cash and investments as of January 28, 2017 , $1,670 was comprised of investments in auction-rate securities (“ARS”). ARShave a long-term stated maturity, but are reset through a “dutch auction” process that occurs every 7 to 49 days, depending on the terms of the individual security.Until February 2008, the ARS market was highly liquid. During February 2008, however, a significant number of auctions related to these securities failed,meaning that there was not enough demand to sell the entire issue at auction. The failed auctions have limited the current liquidity of the Company’s investments inARS. The Company does not, however, anticipate that further auction failures will have a material impact on the Company’s ability to fund its business.
Concentrations of credit risk with respect to accounts receivable are limited due to the nature of the Company’s receivables, which include primarily employeereceivables that can be offset against future compensation. The Company’s financial instruments have a fair value approximating the carrying value.
EarningsPerShare- Basic earnings per share data are based on the weighted average outstanding common shares during the period. Diluted earnings per sharedata are based on the weighted average outstanding common shares and the effect of all dilutive potential common shares.
Use of Estimates - The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States ofAmerica requires management to make estimates and assumptions that affect the reported amounts of certain assets and liabilities, the disclosure of contingentassets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results coulddiffer from these estimates.
RecentlyIssuedAccountingPronouncements- In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU")2014-09, Revenue fromContracts with Customers (Topic 606) , which supersedes the revenue recognition requirements in Accounting Standards Codification("ASC") 605, RevenueRecognition . The new revenue recognition standard requires entities to recognize revenue in a way that depicts the transfer of promisedgoods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In July2015, the FASB approved a one-year deferral of the effective date of the new revenue recognition standard. The new standard will become effective for theCompany beginning with the first quarter of fiscal 2018 and can be adopted either retrospectively to each prior reporting period presented or as a cumulative effectadjustment as of the date of adoption. The Company does not intend to early adopt the new standard and is currently evaluating the effect that adopting this newaccounting guidance will have, but does not expect it will have a material effect on its consolidated results of operations and financial position.
In July 2015, the FASB issued ASU 2015-11, SimplifyingtheMeasurementofInventory. Under this ASU, inventory will be measured at the “lower of cost and netrealizable value” and options that currently exist for “market value” will be eliminated. The ASU defines net realizable value as the “estimated selling prices in theordinary course of business, less reasonably predictable costs of completion, disposal, and transportation.” No other changes were made to the current guidance oninventory measurement. ASU 2015-11 is effective for interim and annual periods beginning after December 15, 2016. The Company does not expect that theadoption of this ASU, in the first quarter of fiscal 2017, will have a material effect on its consolidated results of operations and financial position.
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In February 2016, the FASB issued ASU No. 2016-02, Leases(Topic842). This ASU replaces the existing guidance in ASC 840, Leases. The new standardestablishes a right-of-use ("ROU") model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. Theguidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years and requires retrospective application.The Company is currently evaluating the effect that adopting this new accounting guidance will have on its consolidated results of operations and financialposition, but does expect that it will result in a significant increase in both assets and liabilities.
In March 2016, the FASB issued ASU No. 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based PaymentAccounting . This standard is intended to simplify several aspects of the accounting for share-based payment award transactions, including the income taxconsequences, classification of awards as either equity or liabilities, an option to recognize gross stock compensation expense with actual forfeitures recognized asthey occur, and classifications in the statement of cash flows. ASU 2016-09 is effective for interim and annual periods beginning after December 15, 2016 andearly adoption is permitted. The Company does not expect that the adoption of this ASU, in the first quarter of fiscal 2017, will have a material effect on itsconsolidated results of operations and financial position.
SupplementalCashFlowInformation- The Company had non-cash investing activities during fiscal years 2016 , 2015 , and 2014 of $469 , $1,670 , and $(1,482), respectively. The non-cash investing activity relates to the change in the balance of unpaid purchases of property, plant, and equipment included in accountspayable as of the end of the year. The liability for unpaid purchases of property, plant, and equipment included in accounts payable was $647 , $1,116 , and $2,786as of January 28, 2017 , January 30, 2016 , and January 31, 2015 , respectively. Amounts reported as unpaid purchases are recorded as cash outflows frominvesting activities for purchases of property, plant, and equipment in the consolidated statement of cash flows in the period they are paid. Additional cash flow information for the Company includes cash paid for income taxes during fiscal years 2016 , 2015 , and 2014 of $65,180 , $93,425 , and$100,551 , respectively.
B. INVESTMENTS
The following is a summary of investments as of January 28, 2017 :
AmortizedCost or
Par Value
GrossUnrealized
Gains
GrossUnrealized
Losses
Other-than-TemporaryImpairment
EstimatedFair
ValueAvailable-for-Sale Securities:
Auction-rate securities $ 1,800 $ — $ (130) $ — $ 1,670 Held-to-Maturity Securities:
State and municipal bonds $ 53,324 $ 26 $ (34) $ — $ 53,316 Trading Securities:
Mutual funds $ 12,701 $ 391 $ — $ — $ 13,092 The following is a summary of investments as of January 30, 2016 :
AmortizedCost or
Par Value
GrossUnrealized
Gains
GrossUnrealized
Losses
Other-than-TemporaryImpairment
EstimatedFair
ValueAvailable-for-Sale Securities:
Auction-rate securities $ 7,975 $ — $ (525) $ — $ 7,450 Held-to-Maturity Securities:
State and municipal bonds $ 49,992 $ 163 $ (32) $ — $ 50,123 Trading Securities:
Mutual funds $ 13,442 $ — $ (593) $ — $ 12,849
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The auction-rate securities were invested as follows as of January 28, 2017 :
Nature Underlying Collateral Par Value Municipal revenue bonds 100% insured by AAA/AA/A-rated bond insurers $ 1,750Municipal bond funds Fixed income instruments within issuers' money market funds 50Total par value $ 1,800 As of January 28, 2017 , the Company’s auction-rate securities portfolio was 100% AA/Aa-rated.
The amortized cost and fair value of debt securities by contractual maturity as of January 28, 2017 is as follows:
Amortized
Cost Fair
ValueHeld-to-Maturity Securities Less than 1 year $ 49,994 $ 49,9821 - 5 years 3,330 3,334Total $ 53,324 $ 53,316 As of January 28, 2017 and January 30, 2016 , $1,670 and $7,450 of available-for-sale securities and $3,330 and $13,527 of held-to-maturity securities areclassified in long-term investments. Trading securities are held in a Rabbi Trust, intended to fund the Company’s deferred compensation plan, and are classified inlong-term investments.
The Company’s investments in auction-rate securities (“ARS”) are classified as available-for-sale and reported at fair market value. As of January 28, 2017 , thereported investment amount is net of $130 of temporary impairment to account for the impairment of certain securities from their stated par value. The $130temporary impairment is reported, net of tax, as an “accumulated other comprehensive loss” of $82 in stockholders’ equity as of January 28, 2017 . For theinvestments considered temporarily impaired, all of which have been in loss positions for over a year, the Company believes that these ARS can be successfullyredeemed or liquidated in the future at par value plus accrued interest. The Company believes it has the ability and maintains its intent to hold these investmentsuntil such recovery of market value occurs; therefore, the Company believes the current lack of liquidity has created the temporary impairment in valuation.
As of January 28, 2017 , the Company had $1,800 invested in ARS, at par value, which was reported at its estimated fair value of $1,670 . As of January 30, 2016 ,the Company had $7,975 invested in ARS, which was reported at its estimated fair value of $7,450 . ARS have a long-term stated maturity, but are reset through a“dutch auction” process that occurs every 7 to 49 days, depending on the terms of the individual security. Until February 2008, the ARS market was highly liquid.During February 2008, however, a significant number of auctions related to these securities failed, meaning that there was not enough demand to sell the entireissue at auction. The failed auctions have limited the current liquidity of the Company’s investments in ARS. The Company does not, however, anticipate thatfurther auction failures will have a material impact on the Company’s ability to fund its business. During fiscal years 2016 , 2015 , and 2014 , the Company wasable to successfully liquidate ARS with a par value of $6,175 , $75 , and $2,925 , respectively. The Company reviews all investments for other-than-temporaryimpairment ("OTTI") at least quarterly or as indicators of impairment exist. Indicators of impairment include the duration and severity of decline in market value.In addition, the Company considers qualitative factors including, but not limited to, the financial condition of the investee, the credit rating of the investee, and thecurrent and expected market and industry conditions in which the investee operates.
As of both January 28, 2017 and January 30, 2016 , all of the Company’s investments in ARS were classified in long-term investments.
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C. FAIR VALUE MEASUREMENTS
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurementdate. Financial assets and liabilities measured and reported at fair value are classified and disclosed in one of the following categories:
• Level 1 – Quoted market prices in active markets for identical assets or liabilities. Short-term and long-term investments with active markets or knownredemption values are reported at fair value utilizing Level 1 inputs.
• Level 2 – Observable market-based inputs (either directly or indirectly) such as quoted prices for similar assets or liabilities, quoted prices in markets thatare not active, or other inputs that are observable or inputs that are corroborated by market data.
• Level 3 – Unobservable inputs that are not corroborated by market data and are projections, estimates, or interpretations that are supported by little or nomarket activity and are significant to the fair value of the assets. The Company has concluded that certain of its ARS represent Level 3 valuation. Adiscounted cash flow analysis was used to value these investments. The assumptions used in preparing the discounted cash flow model include estimatesfor interest rates, timing and amount of cash flows, and expected holding periods of the ARS. As of January 28, 2017 , the unobservable inputs used bythe Company and its independent third-party valuation consultant in valuing its Level 3 investments in ARS included:
◦ Duration until redemption of 6.7 years.◦ Discount rate of 3.66% .
As of January 28, 2017 and January 30, 2016 , the Company held certain assets that are required to be measured at fair value on a recurring basis includingavailable-for-sale and trading securities. The Company’s available-for-sale securities include its investments in ARS, as further described in Note B. The failedauctions, beginning in February 2008, related to the Company’s investments in ARS have limited the availability of quoted market prices. The Company hasdetermined the fair value of its ARS using Level 1 inputs for known or anticipated subsequent redemptions at par value, Level 2 inputs using observable inputs,and Level 3 using unobservable inputs where the following criteria were considered in estimating fair value:
• Pricing was provided by the custodian or third-party broker for ARS;• Sales of similar securities;• Quoted prices for similar securities in active markets;• Quoted prices for similar assets in markets that are not active - including markets where there are few transactions for the asset, the prices are not current,
or price quotations vary substantially either over time or among market makers, or in which little information is released publicly;• Pricing was provided by a third-party valuation consultant (using Level 3 inputs).
In addition, the Company considers other factors including, but not limited to, the financial condition of the investee, the credit rating, insurance, guarantees,collateral, cash flows, and the current and expected market and industry conditions in which the investee operates. Management believes it has used informationthat was reasonably obtainable in order to complete its valuation process and determine if the Company’s investments in ARS had incurred any temporary and/orother-than-temporary impairment as of January 28, 2017 and January 30, 2016 .
Future fluctuations in fair value of ARS that the Company judges to be temporary, including any recoveries of previous write-downs, would be recorded as anadjustment to “accumulated other comprehensive loss.” The value and liquidity of ARS held by the Company may be affected by continued auction-rate failures,the credit quality of each security, the amount and timing of interest payments, the amount and timing of future principal payments, and the probability of fullrepayment of the principal. Additional indicators of impairment include the duration and severity of the decline in market value. The interest rates on theseinvestments will be determined by the terms of each individual ARS. The risks associated with the ARS held by the Company include those stated above as well asthe current economic environment, downgrading of credit ratings on investments held, and the volatility of the entities backing each of the issues.
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The Company’s financial assets measured at fair value on a recurring basis are as follows:
Fair Value Measurements at Reporting Date Using
Quoted Prices inActive Markets
for IdenticalAssets
SignificantObservable
Inputs
SignificantUnobservable
Inputs January 28, 2017 (Level 1) (Level 2) (Level 3) TotalAvailable-for-sale securities:
Auction-rate securities $ — $ 45 $ 1,625 $ 1,670Trading securities (including mutual funds) 13,092 — — 13,092Total $ 13,092 $ 45 $ 1,625 $ 14,762
Fair Value Measurements at Reporting Date Using
Quoted Prices inActive Markets
for IdenticalAssets
SignificantObservable
Inputs
SignificantUnobservable
Inputs January 30, 2016 (Level 1) (Level 2) (Level 3) TotalAvailable-for-sale securities:
Auction-rate securities $ — $ 185 $ 7,265 $ 7,450Trading securities (including mutual funds) 12,849 — — 12,849Total $ 12,849 $ 185 $ 7,265 $ 20,299 Securities included in Level 1 represent securities which have a known or anticipated upcoming redemption as of the reporting date and those that have publiclytraded quoted prices. ARS included in Level 2 represent securities which have not experienced a successful auction subsequent to the end of fiscal 2007. The fairmarket value for these securities was determined by applying a discount to par value based on auction prices for similar securities and by utilizing a discountedcash flow model, using market-based inputs, to determine fair value. The Company used a discounted cash flow model to value its Level 3 investments, usingestimates regarding recovery periods, yield, and liquidity. The assumptions used are subjective based upon management’s judgment and views on current marketconditions, and resulted in $125 of the Company’s recorded temporary impairment as of January 28, 2017 . The use of different assumptions would result in adifferent valuation and related temporary impairment charge.
Changes in the fair value of the Company’s financial assets measured at fair value on a recurring basis are as follows:
Fifty-two Weeks Ended January 28, 2017 Fair Value Measurements Using Significant Unobservable Inputs (Level 3) Available-for-Sale Securities Trading Securities
Auction-rate
Securities MutualFunds Total
Balance, beginning of year $ 7,265 $ — $ 7,265
Total gains and losses: Included in net income (45) — (45)Included in other comprehensive income 385 — 385
Purchases, Issuances, Sales, and Settlements: Sales (5,980) — (5,980)
Balance, end of year $ 1,625 $ — $ 1,625
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Fifty-two Weeks Ended January 30, 2016 Fair Value Measurements Using Significant Unobservable Inputs (Level 3) Available-for-Sale Securities Trading Securities
Auction-rate
Securities MutualFunds Total
Balance, beginning of year $ 7,186 $ — $ 7,186
Total gains and losses: Included in other comprehensive income 154 — 154
Purchases, Issuances, Sales, and Settlements: Sales (75) — (75)
Balance, end of year $ 7,265 $ — $ 7,265
There were no transfers of securities between Levels 1, 2, or 3 during the fiscal years ended January 28, 2017 or January 30, 2016 . The Company’s policy is torecognize transfers in and transfers out as of the beginning of the reporting period in which the transfer occurred.
The carrying value of cash equivalents approximates fair value due to the low level of risk these assets present and their relatively liquid nature, particularly giventheir short maturities. The Company also holds certain financial instruments that are not carried at fair value on the consolidated balance sheets, including held-to-maturity securities. Held-to-maturity securities consist primarily of state and municipal bonds. The fair values of these debt securities are based on quoted marketprices and yields for the same or similar securities, which the Company determined to be Level 2 inputs. As of January 28, 2017 , the fair value of held-to-maturitysecurities was $53,316 compared to the carrying amount of $53,324 . As of January 30, 2016 , the fair value of held-to-maturity securities was $50,123 comparedto the carrying amount of $49,992 .
The carrying values of receivables, accounts payable, accrued expenses, and other current liabilities approximates fair value because of their short-term nature.From time to time, the Company measures certain assets at fair value on a non-recurring basis, specifically long-lived assets evaluated for impairment. These aretypically store specific assets, which are reviewed for impairment when circumstances indicate impairment may exist due to the questionable recoverability of thecarrying values of long-lived assets. If expected future cash flows related to a store’s assets are less than their carrying value, an impairment loss would berecognized for the difference between the carrying value and the estimated fair value of the store's assets. The fair value of the store's assets is estimated utilizingan income-based approach based on the expected cash flows over the remaining life of the store's lease. The amount of impairment related to long-lived assets wasimmaterial as of both January 28, 2017 and January 30, 2016 .
D. PROPERTY AND EQUIPMENT
January 28,
2017 January 30,
2016 Land $ 2,491 $ 2,491Building and improvements 42,698 42,486Office equipment 12,632 12,669Transportation equipment 20,955 20,825Leasehold improvements 166,564 161,899Furniture and fixtures 183,046 176,761Shipping/receiving equipment 29,507 27,891Screenprinting equipment — 111Construction-in-progress 1,466 5,629Total $ 459,359 $ 450,762
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E. FINANCING ARRANGEMENTS
The Company has available an unsecured line of credit of $25,000 with Wells Fargo Bank, N.A. for operating needs and letters of credit. The line of creditagreement has an expiration date of July 31, 2017 and provides that $10,000 of the $25,000 line is available for letters of credit. Borrowings under the line of creditprovide for interest to be paid at a rate based on LIBOR. The Company has, from time to time, borrowed against these lines of credit. There were no bankborrowings as of January 28, 2017 and January 30, 2016 . There were no bank borrowings during fiscal 2016 , 2015 , and 2014 . The Company had outstandingletters of credit totaling $1,796 and $2,071 as of January 28, 2017 and January 30, 2016 , respectively.
F. INCOME TAXES
The provision for income taxes consists of:
Fiscal Years Ended
January 28,
2017 January 30,
2016 January 31,
2015Current income tax expense: Federal $ 55,541 $ 78,956 $ 87,679 State 6,029 9,802 11,128Deferred income tax expense (benefit) (3,260) (1,217) (1,675)Total $ 58,310 $ 87,541 $ 97,132
Total income tax expense for the year varies from the amount which would be provided by applying the statutory income tax rate to earnings before income taxes.The primary reasons for this difference (expressed as a percent of pre-tax income) are as follows:
Fiscal Years Ended
January 28,
2017 January 30,
2016 January 31,
2015
Statutory rate 35.0 % 35.0 % 35.0 %State income tax effect 2.5 2.8 2.8Tax exempt interest income (0.1) (0.1) (0.1)Other (0.1) (0.4) (0.3)Effective tax rate 37.3 % 37.3 % 37.4 %
Deferred income tax assets and liabilities are comprised of the following:
January 28,
2017 January 30,
2016Deferred income tax assets (liabilities): Inventory $ 6,626 $ 6,141 Stock-based compensation 3,304 3,596 Accrued compensation 5,716 4,896 Accrued store operating costs 4,070 1,140 Realized and unrealized loss on securities 119 1,173 Gift certificates redeemable 1,887 1,784 Allowance for doubtful accounts 1 3 Deferred rent liability 13,912 14,672 Property and equipment (31,195) (31,561)Less: Valuation allowance — (518)Net deferred income tax asset (liability) $ 4,440 $ 1,326
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As of January 28, 2017 and January 30, 2016 , respectively, the net deferred income tax assets of $4,440 and $1,326 are classified in "other assets." There were nounrecognized tax benefits recorded in the Company’s consolidated financial statements as of January 28, 2017 or January 30, 2016 . Fiscal years 2015 and 2016remain subject to potential federal examination. Additionally, fiscal years 2013 through 2016 are subject to potential examination by various state taxingauthorities.
Valuation allowances are recorded to reduce the value of deferred tax assets to the amount that is more likely than not to be realized. As of January 28, 2017 , theCompany had $215 in deferred tax assets for capital loss carryforwards, which expire in periods from fiscal 2017 through fiscal 2021, and a related valuationallowance of $0 . As of January 30, 2016 , the Company had a deferred tax asset of $760 for capital loss carryforwards and a related valuation allowance of $(518).
G. RELATED PARTY TRANSACTIONS
Included in other assets is a note receivable of $1,245 as of January 28, 2017 and $1,215 as of January 30, 2016 , respectively, from a life insurance trust fundcontrolled by the Company’s Chairman. The note was created over three years , beginning in July 1994, when the Company paid life insurance premiums of $200each year for the Chairman on a personal policy. The note accrues interest at 5% of the principal balance per year and is to be paid from the life insuranceproceeds. The note is secured by a life insurance policy on the Chairman.
H. COMMITMENTS
Leases- The Company conducts its operations in leased facilities under numerous non-cancelable operating leases expiring at various dates through fiscal 2026.Most of the Company’s stores have lease terms of approximately ten years and generally do not contain renewal options. Most lease agreements contain tenantimprovement allowances, rent holidays, rent escalation clauses, and/or contingent rent provisions. For purposes of recognizing lease incentives and minimumrental expenses on a straight-line basis over the terms of the leases, the Company uses the date of initial possession to begin amortization, which is generally whenthe Company enters the space and begins to make improvements in preparation of intended use. For tenant improvement allowances and rent holidays, theCompany records a deferred rent liability on the consolidated balance sheets and amortizes the deferred rent over the terms of the leases as reductions to rentexpense on the consolidated statements of income. For scheduled rent escalation clauses during the lease terms or for rental payments commencing at a date otherthan the date of initial occupancy, the Company records minimum rental expenses on a straight-line basis over the terms of the leases on the consolidatedstatements of income. Certain leases provide for contingent rents, which are determined as a percentage of gross sales in excess of specified levels. The Companyrecords a contingent rent liability on the consolidated balance sheets and the corresponding rent expense when specified levels have been achieved or arereasonably probable to be achieved. Operating lease base rental expense for fiscal 2016 , 2015 , and 2014 was $68,839 , $67,121 , and $65,712 , respectively. Mostof the rental payments are based on a minimum annual rental plus a percentage of sales in excess of a specified amount. Percentage rents for fiscal 2016 , 2015 ,and 2014 were $2,600 , $4,334 , and $4,434 , respectively.
Total future minimum rental commitments under these operating leases with remaining lease terms in excess of one year as of January 28, 2017 are as follows:
Minimum RentalFiscal Year Commitments
2017 $ 68,4872018 61,8722019 54,0882020 44,3672021 35,766Thereafter 90,722Total minimum rental commitments $ 355,302
Litigation- From time to time, the Company is involved in litigation relating to claims arising out of its operations in the normal course of business. As of the dateof these consolidated financial statements, the Company was not engaged in any legal proceedings that are expected, individually or in the aggregate, to have amaterial effect on the Company.
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I. EMPLOYEE BENEFITS
The Company has a 401(k) profit sharing plan covering all eligible employees who elect to participate. Contributions to the plan are based upon the amount of theemployees’ deferrals and the employer’s discretionary matching formula. The Company may contribute to the plan at its discretion. The total expense under theprofit sharing plan was $1,473 , $1,396 , and $1,338 for fiscal years 2016 , 2015 , and 2014 , respectively.
The Buckle, Inc. Deferred Compensation Plan covers the Company’s executive officers. The plan is funded by participant contributions and a specified annualCompany matching contribution not to exceed 6% of the participant’s compensation. The Company’s contributions were $193 , $218 , and $217 for fiscal years2016 , 2015 , and 2014 , respectively.
J. STOCK-BASED COMPENSATION
The Company has several stock option plans which allow for granting of stock options to employees, executives, and directors. The Company has not granted anystock options since fiscal 2008 and there are currently no stock options outstanding. The Company also has a restricted stock plan that allows for the granting ofnon-vested shares of common stock to employees and executives and a restricted stock plan that allows for the granting of non-vested shares of common stock tonon-employee directors. As of January 28, 2017 , 856,306 shares were available for grant under the Company’s various restricted stock plans, of which 781,682shares were available for grant to executive officers.
Compensation expense was recognized during fiscal 2016 , 2015 , and 2014 for equity-based grants, based on the grant date fair value of the awards. The fair valueof grants of non-vested common stock awards is the stock price on the date of grant.
Information regarding the impact of compensation expense related to grants of non-vested shares of common stock is as follows:
Fiscal Years Ended
January 28,
2017 January 30,
2016 January 31,
2015
Stock-based compensation expense, before tax $ 5,330 $ 6,197 $ 6,013
Stock-based compensation expense, after tax $ 3,358 $ 3,904 $ 3,788
FASB ASC 718 requires the benefits of tax deductions in excess of the compensation cost recognized for stock options exercised during the period to be classifiedas financing cash inflows. This amount is shown as “excess tax benefit from stock option exercises” on the consolidated statements of cash flows. For fiscal 2016 ,2015 , and 2014 , the excess tax benefit realized from exercised stock options was $0 , $0 , and $225 , respectively.
Non-vested shares of common stock granted during each of the past three fiscal years were granted pursuant to the Company’s 2005 Restricted Stock Plan and theCompany’s 2008 Director Restricted Stock Plan. Shares granted under the 2005 Plan are typically "performance based" and vest over a period of four years , onlyupon certification by the Compensation Committee of the Board of Directors that the Company has achieved its pre-established performance targets for the fiscalyear. Certain shares granted under the 2005 Plan, however, are "non-performance based" and vest over a period of four years without being subject to theachievement of performance targets. Shares granted under the 2008 Director Plan vest 25% on the date of grant and then in equal portions on each of the first threeanniversaries of the date of grant.
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A summary of the Company’s stock-based compensation activity related to grants of non-vested shares of common stock for the fiscal year ended January 28, 2017is as follows:
Shares
Weighted AverageGrant DateFair Value
Non-Vested - beginning of year 360,784 $ 49.28Granted 336,600 28.42Forfeited (141,930) 50.53Vested (110,155) 45.75Non-Vested - end of year 445,299 $ 33.98 As of January 28, 2017 , there was $4,730 of unrecognized compensation expense related to grants of non-vested shares. It is expected that this expense will berecognized over a weighted average period of approximately 1.9 years . The total fair value of shares vested during fiscal 2016 , 2015 , and 2014 was $2,713 ,$4,568 , and $7,535 respectively. During the fiscal year ended January 28, 2017 , 130,400 shares (representing one-half of the "performance based" shares grantedduring fiscal 2015 under the 2005 Restricted Stock Plan) were forfeited because the Company did not achieve all of the performance targets established for thefiscal 2015 grants.
K. EARNINGS PER SHARE
The following table provides reconciliation between basic and diluted earnings per share:
Fiscal Years EndedJanuary 28, 2017 January 30, 2016 January 31, 2015
Income
WeightedAverageShares
Per ShareAmount Income
WeightedAverageShares
Per ShareAmount Income
Weighted Average Shares
Per Share Amount
Basic EPS $ 97,961 48,125 $ 2.04 $ 147,283 48,079 $ 3.06 $ 162,564 47,927 $ 3.39
Effect of Dilutive Securities: Stock options and non-vested shares — 131 (0.01) — 125 — — 163 (0.01)
Diluted EPS $ 97,961 48,256 $ 2.03 $ 147,283 48,204 $ 3.06 $ 162,564 48,090 $ 3.38 No stock options were deemed anti-dilutive and excluded from the computation of diluted earnings per share for fiscal 2016 , 2015 or 2014 .
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L. SEGMENT INFORMATION
The Company is a retailer of medium to better priced casual apparel, footwear, and accessories. The Company operates its business as one reportable segment. TheCompany operated 467 stores located in 44 states throughout the United States as of January 28, 2017 .
The following is information regarding the Company’s major product lines, stated as a percentage of the Company’s net sales:
Fiscal Years Ended
Merchandise GroupJanuary 28,
2017 January 30,
2016 January 31,
2015
Denims 42.2% 42.5% 43.7%Tops (including sweaters) 30.8 31.0 30.8Accessories 9.2 8.9 8.6Sportswear/Fashions 6.5 6.4 6.2Footwear 5.9 6.0 5.9Outerwear 2.0 2.1 2.3Casual bottoms 1.9 1.5 1.2Other 1.5 1.6 1.3Total 100.0% 100.0% 100.0%
M. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected unaudited quarterly financial information for fiscal 2016 and 2015 are as follows:
QuarterFiscal 2016 First Second Third Fourth
Net sales $ 243,543 $ 212,157 $ 239,213 $ 279,960Gross profit $ 94,729 $ 79,882 $ 96,874 $ 125,683Net income $ 23,097 $ 15,472 $ 23,397 $ 35,995Basic earnings per share $ 0.48 $ 0.32 $ 0.49 $ 0.75Diluted earnings per share $ 0.48 $ 0.32 $ 0.48 $ 0.74
QuarterFiscal 2015 First Second Third Fourth
Net sales $ 271,345 $ 236,053 $ 280,187 $ 332,031Gross profit $ 113,597 $ 94,595 $ 117,264 $ 155,945Net income $ 33,570 $ 23,481 $ 35,893 $ 54,339Basic earnings per share $ 0.70 $ 0.49 $ 0.75 $ 1.13Diluted earnings per share $ 0.70 $ 0.49 $ 0.74 $ 1.13
Basic and diluted shares outstanding are computed independently for each of the quarters presented and, therefore, may not sum to the totals for the year. Each ofthe quarters presented is a 13-week quarter.
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ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A – CONTROLS AND PROCEDURES
The Company maintains a system of disclosure controls and procedures that are designed to provide reasonable assurance that material information, which isrequired to be timely disclosed, is accumulated and communicated to management in a timely manner. An evaluation of the effectiveness of the design andoperation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”)) wasperformed as of the end of the period covered by this report. This evaluation was performed under the supervision and with the participation of the Company’sChief Executive Officer and Chief Financial Officer. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that theCompany’s disclosure controls and procedures as of the end of the period covered by this report were effective to provide reasonable assurance that informationrequired to be disclosed by the Company in the Company’s reports that it files or submits under the Exchange Act is accumulated and communicated tomanagement, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure and areeffective to provide reasonable assurance that such information is recorded, processed, summarized, and reported within the time periods specified by the SEC’srules and forms.
ChangeinInternalControlOverFinancialReporting-There were no changes in the Company's internal control over financial reporting that occurred during theCompany's last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
Management’sReportonInternalControlOverFinancialReporting- Management of the Company is responsible for establishing and maintaining adequateinternal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. The Company’s internal controlover financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with accounting principles generally accepted in the United State of America (“GAAP”).
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide onlyreasonable assurance with respect to financial statement preparation and presentation. Because of its inherent limitations, internal control over financial reportingmay not prevent or detect misstatements.
Management has assessed the effectiveness of the Company’s internal control over financial reporting as of January 28, 2017 , based on the criteria set forth by theCommittee of Sponsoring Organizations (“COSO”) of the Treadway Commission in their Internal Control-Integrated Framework (2013) . In making itsassessment of internal control over financial reporting, management has concluded that the Company’s internal control over financial reporting was effective as ofJanuary 28, 2017 .
The Company’s independent registered public accounting firm, Deloitte & Touche LLP, has audited the effectiveness of the Company’s internal control overfinancial reporting. Their report appears herein.
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders ofThe Buckle, Inc.Kearney, Nebraska
We have audited the internal control over financial reporting of The Buckle, Inc. and subsidiary (the “Company”) as of January 28, 2017, based on criteriaestablished in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. TheCompany’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internalcontrol over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting . Our responsibility is toexpress an opinion on the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that weplan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluatingthe design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in thecircumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principalfinancial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to providereasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generallyaccepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance ofrecords that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance thattransactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receiptsand expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonableassurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on thefinancial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls,material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of theinternal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or thatthe degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of January 28, 2017, based on the criteriaestablished in InternalControl- IntegratedFramework(2013)issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statementsand financial statement schedule as of and for the fiscal year ended January 28, 2017, of the Company and our report dated March 29, 2017, expressed anunqualified opinion on those financial statements and financial statement schedule.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLPOmaha, NebraskaMarch 29, 2017
50
ITEM 9B - OTHER INFORMATION
As required by Section 303A of the New York Stock Exchange’s Corporate Governance Standards, the Company’s Chief Executive Officer submitted acertification to the New York Stock Exchange in fiscal 2016 that he was not aware of any violation by the Company of the New York Stock Exchange’s CorporateGovernance Standards as of the date of the certification, June 27, 2016.
PART III
ITEM 10 - DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
The information required by this item appears under the captions "Executive Officers of the Company" appearing on pages 10 and 11 of this report and "Electionof Directors" in the Company's Proxy Statement for its 2017 Annual Shareholders' Meeting and is incorporated by reference.
ITEM 11 - EXECUTIVE COMPENSATION
The information required by this item appears under the following captions in the Company's Proxy Statement for its 2017 Annual Shareholders' Meeting and isincorporated by reference: “Executive Compensation,” “Director Compensation” (included under the “Election of Directors” section), and “Report of the AuditCommittee.”
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information required by this item appears under the captions "Beneficial Ownership of Common Stock" and “Election of Directors” in the Company's ProxyStatement for its 2017 Annual Shareholders' Meeting and in the Notes to Consolidated Financial Statements under Footnote J on pages 46 to 47 of this report and isincorporated by reference.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
The information required by this item appears under the captions “Independence” and “Related Party Transactions” (included under the “Election of Directors”section) in the Company's Proxy Statement for its 2017 Annual Shareholders' Meeting and is incorporated by reference.
ITEM 14 - PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information regarding the fees billed by our independent registered public accounting firm and the nature of services comprising the fees for each of the two mostrecent fiscal years is set forth under the caption “Ratification of Independent Registered Public Accounting Firm” in the Company’s Proxy Statement for its 2017Annual Shareholders' Meeting and is incorporated by reference.
PART IV
ITEM 15 - EXHIBITS AND FINANCIAL STATEMENT SCHEDULE
(a) Financial Statement ScheduleValuation and Qualifying Account. This schedule is on page 53.All other schedules are omitted because they are not applicable or the required information is presented in the consolidated financial statements or notes thereto.
(b) ExhibitsSee index to exhibits on pages 54 and 55.
51
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf bythe undersigned thereunto duly authorized.
THE BUCKLE, INC.
Date: March 29, 2017 By: /s/ DENNIS H. NELSON DENNIS H. NELSON, President and CEO (principal executive officer)
Date: March 29, 2017 By: /s/ KAREN B. RHOADS KAREN B. RHOADS,
Senior Vice President of Finance and CFO (principal accounting officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in thecapacities indicated on the 29th day of March, 2017.
/s/ DANIEL J. HIRSCHFELD /s/ BILL L. FAIRFIELDDaniel J. Hirschfeld Bill L. FairfieldChairman of the Board and Director Director
/s/ DENNIS H. NELSON /s/ BRUCE L. HOBERMANDennis H. Nelson Bruce L. HobermanPresident and Chief Executive Officer Directorand Director
/s/ KAREN B. RHOADS /s/ MICHAEL E. HUSSKaren B. Rhoads Michael E. HussSenior Vice President of Finance and DirectorPrincipal Accounting Officer and Director
/s/ JOHN P. PEETZ /s/ JAMES E. SHADAJohn P. Peetz, III James E. ShadaDirector Director
/s/ ROBERT E. CAMPBELL Robert E. Campbell Director
52
SCHEDULE II - Valuation and Qualifying Accounts(Amounts in Thousands)
Allowance forDoubtful Accounts
Reserve for SalesReturns
ValuationAllowance -
Deferred Tax Assets
Balance, February 1, 2014 $ 11 $ 750 $ 925
Amounts charged to costs and expenses 737 — — Amounts charged to other accounts — 110,793 — Deductions (741) (110,600) (407)
Balance, January 31, 2015 $ 7 $ 943 $ 518
Amounts charged to costs and expenses 835 — — Amounts charged to other accounts — 113,325 — Deductions (835) (113,434) —
Balance, January 30, 2016 $ 7 $ 834 $ 518
Amounts charged to costs and expenses 1,350 — — Amounts charged to other accounts — 101,375 — Deductions (1,353) (101,540) (518)
Balance, January 28, 2017 $ 4 $ 669 $ —
53
INDEX TO EXHIBITS
Exhibits Page Number or Incorporation by Reference to
(3) Articles of Incorporation and By-Laws. (3.1) Articles of Incorporation of The Buckle, Inc. as amended Exhibit 3.1 to Form S-1 No. 33-46294 (3.1.1) Amendment to the Articles of Incorporation of The Buckle, Inc. (3.2) By-Laws of The Buckle, Inc. Exhibit 3.2 to Form S-1 No. 33-46294
(4) Instruments defining the rights of security holders, including indentures
(4.1) See Exhibits 3.1 and 3.2 for provisions of the Articles of Incorporation and By-laws of the Registrant defining rights of holders of Common Stock of theregistrant
(4.2) Form of stock certificate for Common Stock Exhibit 4.1 to Form S-1 No. 33-46294
(9) Not applicable
(10) Material Contracts
(10.1) Amended and Restated Non-Qualified Deferred Compensation Plan (*)
Exhibit 10.6 and 10.6.1 to Form 10-K filed for the fiscalyear ended January 28, 2012
(10.2) Revolving Line of Credit Note and First Amendment to Credit Agreement,dated June 8, 2012 between The Buckle, Inc. and Buckle Brands, Inc. andWells Fargo Bank, N.A. for a $25.0 million line of credit
Exhibit 10.1 to Form 10-Q filed for the fiscal quarter endedJuly 28, 2012
(10.2.1) Revolving Line of Credit Note and Second Amendment to Credit Agreement,dated February 16, 2015 between The Buckle, Inc. and Buckle Brands, Inc.and Wells Fargo Bank, N.A. for a $25.0 million line of credit
Exhibit 10.2.1 to Form 10-K filed for the fiscal year endedJanuary 31, 2015
(10.3) 1993 Director Stock Option Plan Amended and Restated (*)
Exhibit B to Proxy Statement for Annual Meeting heldJune 2, 2006
(10.4) 1997 Executive Stock Option Plan (*)
Exhibit B to Proxy Statement for Annual Meeting heldMay 28, 1998
(10.5) 1998 Restricted Stock Plan (*)
Exhibit C to Proxy Statement for Annual Meeting heldMay 28, 1998
(10.6) 2005 Restricted Stock Plan Amended and Restated (*)
Exhibit B to Proxy Statement for Annual Meeting heldMay 31, 2013
(10.7) 2008 Director Restricted Stock Plan (*)
Exhibit B to Proxy Statement For Annual Meeting heldMay 28, 2008
(10.8) 2015 Management Incentive Plan (*)
Exhibit A to Proxy Statement for Annual Meeting heldMay 29, 2015
(10.9) 2016 Management Incentive Plan (*)
Exhibit A to Proxy Statement for Annual Meeting heldMay 27, 2016
(10.10) Summary of Named Executive Officer Compensation (*)
Incorporated by reference from the section titled"Executive Compensation and Other Information" in ProxyStatement for Annual Meeting to be held May 30, 2017
(10.11) Summary of Non-Employee Director Compensation (*)
Incorporated by reference from the section titled "DirectorCompensation" in Proxy Statement for Annual Meeting tobe held May 30, 2017
54
Exhibits Page Number or Incorporation by Reference to
(11) Not applicable
(12) Not applicable
(13) Not applicable
(14) Not applicable
(16) Not applicable
(18) Not applicable
(21) List of Subsidiaries
(23) Consent of Deloitte & Touche LLP
(31a) Certification Pursuant to Rule 13a-14(a) or 15d-14(a) Under the Securities Exchange Actof 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
(31b) Certification Pursuant to Rule 13a-14(a) or 15d-14(a) Under the Securities Exchange Actof 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
(32) Certifications Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906of the Sarbanes-Oxley Act of 2002.
(101) Includes the following materials from The Buckle, Inc.’s Annual Report on Form 10-Kfor the fiscal year ended January 28, 2017, formatted in XBRL (eXtensible BusinessReporting Language): (i) Consolidated Balance Sheets; (ii) Consolidated Statements ofIncome; (iii) Consolidated Statements of Comprehensive Income; (iv) ConsolidatedStatements of Stockholders’ Equity; (v) Consolidated Statements of Cash Flows; and(vi) Notes to Consolidated Financial Statements, tagged as blocks of text and in detail.
(*) Denotes management contract or compensatory plan or arrangement.
55
EXHIBIT 21
THE BUCKLE, INC.SUBSIDIARIES
Buckle Brands, Inc., a Nebraska corporation
EXHIBIT 23
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statement No. 333-205670, Registration Statement No. 333-205671, Registration Statement No. 333-169286, Registration Statement No. 333-158379, Post-Effective Amendment No. 1 to Registration No. 333-133384, Post-Effective Amendment No. 2 toRegistration Statement No. 333-70633, Post-Effective Amendment No. 2 to Registration Statement No. 333-70641, and Post-Effective Amendment No. 2 toRegistration Statement No. 333-70643 on Form S-8 of our reports dated March 29, 2017, relating to the consolidated financial statements and financial statementschedule of The Buckle, Inc. and subsidiary, and the effectiveness of The Buckle Inc. and subsidiary's internal control over financial reporting, appearing in thisAnnual Report on Form 10-K of The Buckle, Inc. for the year ended January 28, 2017.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLPOmaha, NebraskaMarch 29, 2017
EXHIBIT 31a
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO RULE 13a-14(a) or15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS ADOPTED
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Dennis H. Nelson, certify that:
1. I have reviewed this annual report of The Buckle, Inc. on Form 10-K for the fiscal year ended January 28, 2017 ;
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this report;
4. The Registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in ExchangeAct Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for theregistrant and have:
a. Designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision, to ensurethat material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularlyduring the period in which this report is being prepared; b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, toprovide reasonable assurance regarding the reliability of financial reporting and preparation of financial statements for external purposes in accordancewith generally accepted accounting principles; c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness ofthe disclosure controls and procedures, as of the end of the period covered by this report, based on such evaluation; and d. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscalquarter (the registrant's fourth fiscal quarter) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control overfinancial reporting; and
5. The Registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant's auditors and the audit committee of registrant's board of directors:
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely toadversely affect the registrant's ability to record, process, summarize, and report financial information; and b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls overfinancial reporting.
Date: March 29, 2017 /s/ DENNIS H. NELSON Dennis H. Nelson Chief Executive Officer
EXHIBIT 31b
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO RULE 13a-14(a) or15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS ADOPTED
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Karen B. Rhoads, certify that:
1. I have reviewed this annual report of The Buckle, Inc. on Form 10-K for the fiscal year ended January 28, 2017 ;
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this report;
4. The Registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in ExchangeAct Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for theregistrant and have:
a. Designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision, to ensurethat material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularlyduring the period in which this report is being prepared; b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, toprovide reasonable assurance regarding the reliability of financial reporting and preparation of financial statements for external purposes in accordancewith generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness ofthe disclosure controls and procedures, as of the end of the period covered by this report, based on such evaluation; and
d. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscalquarter (the registrant's fourth fiscal quarter) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control overfinancial reporting; and
5. The Registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant's auditors and the audit committee of registrant's board of directors:
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely toadversely affect the registrant's ability to record, process, summarize, and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls overfinancial reporting.
Date: March 29, 2017 /s/ KAREN B. RHOADS Karen B. Rhoads Principal Accounting Officer
EXHIBIT 32
CERTIFICATION PURSUANT TO18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of The Buckle, Inc. (the “Company”) on Form 10-K for the period ended January 28, 2017 , as filed with the Securities andExchange Commission on the date hereof (the “Report”), I, Dennis H. Nelson, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ DENNIS H. NELSON Dennis H. Nelson Chief Executive Officer March 29, 2017
In connection with the Annual Report of The Buckle, Inc. (the “Company”) on Form 10-K for the period ended January 28, 2017 , as filed with the Securities andExchange Commission on the date hereof (the “Report”), I, Karen B. Rhoads, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350,as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ KAREN B. RHOADS Karen B. Rhoads Principal Accounting Officer March 29, 2017
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